British Pound Continues to Weaken Despite Subdued Market Action
What’s been happening?
Pound Sterling – UK Markets
The pound sterling suffered losses against both the euro and the dollar on Wednesday as markets continued to lose hope that the government and the Labour party could come up with a Brexit deal that will be supported by parliaments.
During the daily briefing, British Prime Minister Theresa May’s spokesman said that more work was needed if cross-party talks were to provide a route to a solution. Earlier in the day, political editor of The Sun, Tom Newton Dunn, tweeted out that British Prime Minister Theresa May was close to setting out a timetable for her departure from No10. Commenting on these claims, "The PM has been clear she will stay in post to see through phase one of Brexit negotiations then she will make way for new leadership for phase two," the spokesman said. Meanwhile, Labour’s spokesman told reporters that their party wanted to “nail down” in the next few days whether and how far the government is willing to move. Meanwhile, Bank of England (BOE) Deputy Governor Dave Ramsden didn’t deliver any comments on the policy outlook during a scheduled appearance at a conference in London.
US Dollar – US Markets
The US Dollar Index, which measures the dollar’s value against a basket of six major currencies, struggled to make a decisive move in either direction on Wednesday with investors refraining from making large bets amid the uncertainty surrounding the U.S.-China trade dispute.
U.S. President Trump on Wednesday tweeted out that China had informed him that Vice-Premier Liu He was coming to Washington to make a deal. Moreover, White House spokeswoman Sanders told reporters that they had received an indication that China was willing to reach an agreement with the U.S. on trade. However, the U.S. also published an official notice in the Federal Register revealing that a tariff hike to 25% on $200 billion worth of Chinese goods will go into effect on Friday. In an official response, China’s commerce ministry said that it will have to take necessary retaliatory measures if the U.S. were to raise the tariff rate on May 10.
Later in the day, while speaking at an event organised by the Federal Reserve Bank of Richmond, the bank’s president, Thomas Barkin, said that there was no risk of a recession in the U.S. with the unemployment and the interest rates remaining at historically low levels.
Euro – European Markets
The shared currency stayed relatively quiet on Wednesday amid a lack of macroeconomic data releases from the euro area. During a Q&A session at the Generation €uro Students’ Award, European Central Bank President Mario Draghi noted that the pressure on nominal wages was increasing and argued that the ECB would lose its credibility if it were to change its inflation target. Nevertheless, these remarks were largely ignored by the market participants.
What’s coming up?
UK: There won’t be any macroeconomic data releases from the UK on Thursday and markets will remain focused on political headlines.
US: The weekly jobless claims, trade balance, and producer price index data will be featured in the U.S. economic docket. Furthermore, FOMC Chairman Powell is scheduled to deliver a speech as well.
EU: There won’t be any macroeconomic data releases from the euro area on Thursday either.