What’s been happening?

Pound Sterling – UK Markets

The British pound slumped to its lowest level against the dollar since April 2017 and fell to a 6-month low vs the euro on Tuesday hurt by the uninspiring employment from the UK and the ongoing uncertainty surrounding Brexit.

The UK’s Office for National Statistics today announced that the ILO unemployment rate remained unchanged at 3.8% in May. However, the claimant count change came in at 38,000, worse than the market expectation of 22,800. “Estimated annual growth in average weekly earnings for employees in Great Britain increased to 3.4% for total pay (including bonuses) and 3.6% for regular pay (excluding bonuses),” the ONS said in its publication.

Heightened concerns over a no-deal Brexit following Monday’s political debate between Prime Minister candidates Boris Johnson and Jeremy Hunt forced the currency to stay under constant selling pressure on Tuesday. Moreover, Irish finance minister Paschal Donohoe argued that the prospect of a no-deal Brexit was more likely than it had ever been. Although the next head of the European Union's executive, Ursula von der Leyen, said that she would work "in a constructive way" with the next PM, her comments did little to nothing to help the sterling find demand.

US Dollar – US Markets

The greenback continued to gather strength on Tuesday and the US Dollar Index extended its recovery and added 0.5% daily. 

The data published by the U.S. Census Bureau revealed that retail sales in June increased by 0.4% monthly and surpassed the market expectation of 0.1%. Other data showed that the industrial production in the same period stagnated and the capacity utilization edged down to 77.9% from 78.1% but the dollar didn’t have a difficult time preserving its strength as the 2% increase witnessed in the 10-year Treasury bond yield provided a boost to the currency. 

Meanwhile, Chicago Fed President Evans argued that a 50 basis points cut may be needed to lift the inflation toward the target but added that Fed should not be in the business of providing "excess" stimulus to improve growth. 

Euro – European Markets

The shared currency erased all the gains it recorded vs the greenback last week but continued to climb higher against the pound sterling. The data published by the Eurostat on Tuesday revealed that the trade surplus widened to €20.2 billion from €15.7 billion to beat analysts’ estimate of €17.9 billion. On the other hand, the ZEW’s  Economic Sentiment Index for Germany dropped to -24.5 from -21.1 and fell short of the market expectation of -22.3. Commenting on the data, “In particular the continued negative trend in incoming orders in the German industry is likely to have reinforced the financial market experts’ pessimistic sentiment. A lasting containment of the factors that are causing uncertainty in the export-oriented sectors of the German economy is currently not in sight,” said ZEW President Professor Achim Wambach. “The Iran conflict seems to be intensifying and the ongoing trade dispute between the USA and China is a burden not only to Chinese economic development. Furthermore, no discernible progress has been made in the negotiations as to what Brexit will look like.”

What’s coming up? 

UK: The UK’s Office for National Statistics will release the Retail Price Index, Consumer Price Index, and Producer Price Index data on Wednesday.

US: The housing starts and building permits figures will be featured in the U.S. economic docket.

EU: The Eurostat will publish the inflation report, which is expected to show the core CPI stay unchanged at 1.1% on a yearly basis in June.