What’s been happening?

Pound Sterling – UK Markets 

The British pound rose to its highest level in a week against the dollar and remained resilient vs the euro as the Bank of England, unlike the ECB and the Fed, refrained from making a dovish shift while keeping a  cautious tone in its policy statement on Thursday.

As expected, the BoE's Monetary Policy Committee (MPC) decided to keep the policy rate steady at 0.75% with a unanimous vote while leaving the asset purchase facility unchanged at €435 billion as well. In the accompanying publication, the BoE noted that the underlying economic growth in the UK weakened slightly in the first half of 2019. "Downside risks to growth have increased since May as global trade tensions intensify, perceived likelihood of no-deal Brexit rises," the BoE further added and announced that it lowered the second quarter growth expectation to 0% from 0.2% seen in May projections. Nevertheless, the bank also reiterated that assuming smooth Brexit, the ongoing tightening of the monetary policy at a gradual and limited pace was needed. 

Earlier in the day, the UK’s Office for National Statistics reported that retail sales in May declined by 0.5% on a monthly basis following April’s 0.1% contraction and dragged the annual growth rate to 2.2% from 4.7%. “Fuel stores contributed negatively to the amount spent and quantity bought, both at negative 0.2 percentage points. Non-food stores also contributed negatively to the amount spent and quantity bought, at negative 0.1 and negative 0.2 percentage points respectively,” the ONS elaborated in its press release.

US Dollar – US Markets

The weekly data published by the U.S. Department of Labor on Thursday showed that the number of citizens applying for unemployment benefits dropped to 216,000 in the week ending June 14 and came in slightly better than the market expectation of 220,000. On the other hand, the Federal Reserve Bank of Philadelphia’s Manufacturing Survey revealed that the business activity in the region’s manufacturing sector expanded at a much slower pace in June with the headline General Activity Index slumping to 0.3 from 16.6 in June. 

The mixed data failed to help the greenback stage a recovery and the US Dollar Index, which tracks the buck’s value against a basket of six major currencies, fell to its lowest level in two weeks as investors continued to price rate cut expectations. According to the CME Group’s FedWatch tool, there is a 61.5% probability of a 25 bps rate cut in July and a 38.5% probability of a 50 bps rate cut, which puts the odds of the Fed staying on hold at 0%.  

Euro – European Markets

The shared currency posted strong gains against the dollar for the second straight day on Thursday. In its monthly Economic Bulletin, the European Central Bank (ECB) said that the underlying growth momentum continued to soften in early 2019. “Global financial conditions have been volatile in recent months,” the ECB said. “Global growth is projected to decelerate this year amid increasing headwinds.”

Later in the day, the European Commission in its latest business and consumer survey announced that the consumer sentiment continued to worsen in June with the Confidence Index dropping to -7.2 from -6.5.  “In May 2019, the Economic Sentiment Indicator (ESI) increased in the euro area (by 1.2 points to 105.1) and remained broadly stable in the EU (+0.2 points to 103.8),” the EC added.

What’s coming up? 

UK: The Bank of England will release its Quarterly Bulletin for the second quarter on Friday.  

US: Existing home sales and the IHS Markit’s preliminary Manufacturing and Services PMI reports for June will be featured in the U.S. economic docket. The Fed’s Vice Chair, Richard Clarida, and Governor Lael Brainard will be delivering speeches as well. 

EU: The IHS Markit will publish its Manufacturing, Services, and Composite PMI figures for France, Germany, and the eurozone on Friday.