No Deal Brexit Fears Pulls Sterling Lower
What’s been happening?
Pound Sterling – UK Markets
The British pound fell to its lowest level since April 2017 against the dollar and suffered heavy losses vs the euro hurt by revived concerns of a no-deal Brexit and the potential negative impact on the economy.
While commenting on British Prime Minister Boris Johnson’s remarks to lawmakers on Friday, Ireland's foreign minister, Simon Coveney said Johnson’s approach to Brexit was not helpful for them to reach an agreement for an orderly exit. "Yesterday (Thursday )was a very bad day from a Brexit negotiations perspective," Coveney told reporters in Belfast. "Johnson's comments seem designed to set the UK on a collision course with the EU."
Over the weekend, new Cabinet Office Minister Michael Gove, who is also in charge of no-deal Brexit planning, wrote in The Sunday Times that the government was now operating on the assumption that the EU would not strike a new agreement with the UK. "No deal is now a very real prospect," Gove said. "Boris Johnson has set up a war cabinet to deliver Brexit by any means necessary by October 31." Additionally, finance minister Sajid Javid announced that they will introduce a new spending package of £1 billion in their effort to ramp up no-deal preparations.
US Dollar – US Markets
The greenback preserved its strength on Friday and the US Dollar Index, which track’s the USD’s value against a basket of six major currencies, advanced to its highest level since late May boosted by upbeat GDP data.
Although the US Bureau of Economic Analysis in its first estimate reported that the real economy expanded by 2.1% on a yearly basis in the second quarter following the first quarter’s strong 3.1% reading, this number came in better than the market expectation of 1.8%. Further details of the report revealed that the Personal Consumption Expenditures (PCE) Prices rose to 2.6% on a quarterly basis from 0.4% and surpassed the market expectation of 0.6%. “The deceleration in real GDP in the second quarter reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in PCE and federal government spending,” the BEA said in its publication.
Euro – European Markets
The lack of macroeconomic data releases from the euro area left the currency at the mercy of the performance of its major counterparts and closed the week lower vs the dollar while recording modest weekly gains against the pound sterling.
Commenting on the policy outlook, “We will likely have an interest rate level that is somewhat higher than it is today, but still lower than we have grown accustomed to from earlier times,” European Central Bank (ECB) policymaker Ewald Nowotny said. Meanwhile, the latest ECB survey revealed that the Bank was now expecting the 2019 inflation to be 1.3% and 2020 inflation at 1.4%, down 0.1% from the previous estimate.
What’s coming up?
UK: The Bank of England will release the net lending to individuals, consumer credit and M4 money supply data on Monday. re won’t be any macroeconomic data releases from the UK on Friday.
US: The only data featured in the US economic docket will ve the Federal Reserve Bank of Dallas’ Manufacturing Business Index, which is expected to improve to -5.1 in July from -12.1 in June.
EU: Produce Price Index from Italy and retail sales data from Spain will be published on Monday but are unlikely to impact the shared currency’s market valuation.