European Currencies Struggle to Stage a Steady Recovery
What’s been happening?
Pound Sterling – UK Markets
The pound sterling struggled to build on its recent gains vs the dollar and closed both the day and the week in the negative territory. Against the euro, the currency stayed virtually unchanged.
The only data releases from the UK on Friday showed that the public sector net borrowing in June rose to £6.5 billion from £3.8 billion and came in above the market expectation of £3.2 billion but was largely ignored by the markets. Later in the day, British Conservative politician and the member of Parliament for North East Somerset, Jacob Rees-Mogg claimed that Boris Johnson will resist the political pressure to delay Brexit again. “The question will be does the prime minister have the backbone to go ahead and leave, and I think Boris Johnson does, or would the prime minister be in the same position as Theresa May, and give into this type of pressure,” Rees-Mogg said, per Reuters.
Meanwhile, according to a Reuters poll, the odds of a no-deal Brexit outcome is now at the highest level since October 2017 at 30% compared to 25% reported back in June. “The slump in sterling has driven up prices in import-reliant Britain and the economists who were polled expected inflation to hover around the Bank's target for the next three years at least,” Reuters reported.
US Dollar – US Markets
The greenback gathered strength against its major rivals on Friday and the US Dollar Index closed the week with modest gains. The University of Michigan’s Consumer Confidence Index came in at 98.4 in July’s advance reading and missed the market expectation of 98.5. “Consumer sentiment remained largely unchanged in early July from June, remaining at quite favourable levels since the start of 2017. Moreover, the variations in Sentiment Index have been remarkably small, ranging from 91.2 to 101.4 in the past 30 months,” noted Surveys of Consumers chief economist Richard Curtin.
Commenting on the Fed’s policy outlook in an interview with the Wall Street Journal, St. Louis Federal Reserve President James Bullard argued that the Fed did not need to make a large rate cut. “I would have preferred to just go ahead at the last meeting, and then we would have gotten out of this argument about whether we're going to do 50 basis points at the meeting and we would have been able to come into the July meeting and ask if more was needed or not," Bullard told the WSJ.
Euro – European Markets
The shared currency posted modest gains against the dollar on Friday and stayed flat vs the pound sterling. The only data of the day published by the European Central Bank showed that the current account surplus in May widened to €29.7 billion (seasonally adjusted) from €22.4 billion. While speaking at a conference in Tokyo, Fitch Ratings’ head claimed that the ECB will restart its quantitative easing program. On a similar note, German news magazine Der Spiegel wrote that the Bank was planning to restart purchasing government bonds by November.
What’s coming up?
UK: The Confederation of British Industry (CBI) will publish its Industrials Trends Survey (orders) on Monday.
US: The Chicago Fed’s National Activity Index will be the only data featured in the U.S. economic docket.
EU: Germany’s Bundesbank will release its monthly report on Monday.