What’s been happening?

Pound Sterling – UK Markets 

The British pound struggled to preserve its strength on Tuesday amid the latest political headlines and disappointing data and closed the day lower vs the greenback while staying unchanged against the euro.

During an interview with BBC’s Laura Kuenssberg, British Prime Minister candidate Boris Johnson said parliament was ready to back a no-deal Brexit and added that they needed to convince the EU that they are serious about leaving it. Later in the day, “current Brexit deal is basically dead,” Johnson reiterated despite the fact that EU officials numerous times made it clear that they would not reopen negotiations.  

Meanwhile, in its monthly Distributive Trades Survey, the Confederation of British Industry noted that retail sales volumes fell at their fastest pace since March 2009 on a yearly basis in June. "16% of retailers said that sales volumes were up in June on a year ago, whilst 58% said they were down, giving a weighted balance of -42%," the CBI explained in its press release. Commenting on the data, “This month’s drop in sales should be taken with a pinch of salt, given the backdrop of last June’s heatwave and the start of the World Cup," said Alpesh Paleja, CBI Principal Economist.   

US Dollar – US Markets

After posting heavy losses for four straight days against its major rivals, the greenback finally staged a modest rebound on Tuesday boosted by St. Louis Fed President Jim Bullard’s relatively hawkish remarks. During an interview with Bloomberg TV,  Bullard argued against a 50 basis points rate cut in July. "I don't think the situation really calls for that, but I would be willing to go 25," Bullard said. Following these comments,  the CME Group's FedWatch Tool’s probability of a 50 bps rate cut in July fell to 35% from 43% seen on Monday. In the meantime, in his prepared remarks delivered at the Council on Foreign Relations in New York, Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, repeated that many members of the Federal Open Market Committee (FOMC) saw stronger case for more policy accommodation but added that they did not want to overreact to individual data points or short-term swings. 

Earlier in the day, the monthly data published by the Conference Board showed that the consumer sentiment weakened in June with the headline Confidence Index dropping to its lowest level since September 2017 at 121.5. Assessing the findings, “The escalation in trade and tariff tensions earlier this month appears to have shaken consumers’ confidence. Although the Index remains at a high level, continued uncertainty could result in further volatility in the Index and, at some point, could even begin to diminish consumers’ confidence in the expansion,” said Lynn Franco, Senior Director of Economic Indicators at the CB.

Other data from the U.S. revealed that new home sales declined by 7.8% on a monthly basis in May to miss the market expectation for an increase of 1.9% and the Richmond Fed’s Manufacturing Index edged lower to 3 in June from 5 in May.    

Euro – European Markets

The lack of macroeconomic data releases from the euro area on Tuesday left the shared currency at the mercy of its peers’ performance. The euro closed the day modestly lower against the dollar and was virtually flat vs. the pound sterling.

Earlier in the day, “effects of negative rates on the banking sector need to be carefully monitored, particularly because the balance of their effects will depend on how long rates remain,” European Central Bank Vice President Luis de Guindos told a conference in Rome. “Banks’ profitability prospects could thus be dampened by deteriorating growth expectations, adding to structural weaknesses,” de Guindos added.

What’s coming up? 

UK: Bank of England Governor Carney is scheduled to testify before the Treasury Committee as part of the Inflation Report Hearings.

US: Wholesale inventories, durable goods orders, and the trade balance figures will be featured in the U.S. economic docket on Wednesday. 

EU: There won’t be any macroeconomic data releases from the euro area. European Central Bank Governing Council member Mersch is scheduled to deliver a speech.