British Pound Stays Under Pressure Ahead of Tuesday's Vote
What’s been happening?
Pound Sterling – UK Markets
The British pound continued to weaken against its major rivals on Monday and touched its lowest level since January vs both the greenback and the euro. In the absence of significant macroeconomic data releases from the UK, political headlines failed to help the sterling find demand ahead of the second round of voting for the Conservative Party leadership tomorrow.
Despite the fact that the EU officials made it clear that they are not going to renegotiate the Withdrawal Agreement, Jeremy Hunt, one of the candidates to succeed British Prime Minister Theresa May, said that it was possible to renegotiate the Brexit deal. “No amount of campaigning brilliance will avoid devastation for the Conservative party if we don't deliver Brexit,” Hunt added.
Meanwhile, in its latest economic forecast, the British Chambers of Commerce (BCC) announced that it has downgraded its growth prediction for 2020 to 1.0% from the previous forecast of 1.3% and to 1.2% from 1.4% for 2021 while raising the 2019 estimate to 1.3% from 1.2%. The BCC further noted that business investment picked up slightly in 2019 after falling throughout 2018.
US Dollar – US Markets
Although the greenback came under modest selling pressure following the disappointing Empire State Manufacturing Survey published by the Federal Reserve Bank of New York, it didn’t have a difficult time recovering its losses as investors are not looking to make large bets ahead of this week’s critical FOMC meeting.
Regarding the Fed’s policy outlook, Fitch Ratings on Monday said that they were forecasting the bank to leave the interest rate on hold throughout 2019 and noted that the U.S._china trade conflict was expected cause “collateral damage” to the global economic outlook.
The NY Fed today announced that the business activity in the manufacturing sector in the NY area is expected to contract in June with the headline Manufacturing Index dropping to its lowest level since October 2016 at -8.6 from 17.8 in May. Other data from the U.S. revealed that the NAHB Housing Market Index in June edged down to 64 from 66 but was largely ignored by the market participants.
Euro – European Markets
The shared currency struggled to gather strength against the greenback but continue to outperform the British pound on Monday despite a lack of fundamental drivers. In his opening statement at the European Central Bank’s Forum on Central Banking on Monday, President Draghi didn’t comment on the policy outlook or the eurozone’s economic performance. Earlier in the day, Vice President Luis de Guindos noted that the ECB will act if inflation expectations are de-anchored. On the other hand, Governing Council (GC) member Benoit Coeure adopted a more optimistic tone in an interview with the Financial Times. “The eurozone economy is not doing so badly; in fact, services and construction are doing quite well,” Coeure said. “The question is which instrument, or combination of instruments, would be best suited to the circumstances, that discussion only started in Vilnius; we need to take it forward.”
The only data from the euro area revealed that the labour cost in the first quarter rose by 2.4% following the 2.3% increase seen in the last quarter of 2018 but fell short of the market expectation os 2.6%.
What’s coming up?
UK: There won’t be any macroeconomic data releases from the UK on Tuesday but the second round of voting for the Conservative Party leadership will take place. Later in the day, Bank of England Governor Carney is scheduled to deliver a speech.
US: The U.S. Census Bureau will release the building permits and the housing starts data.
EU: The European economic docket will feature trade balance and inflation data, which is expected to show the core Consumer Price Index (CPI) staying unchanged at 0.8% on a yearly basis in May, for the eurozone. ECB President Draghi and GC members will be speaking at the ECB forum in Portugal.