Pound Sterling Slumps on Hard-Brexit Concerns
What’s been happening?
Pound Sterling – UK Markets
The sterling slumped to its lowest level against the euro in nearly a year while remaining relatively stable vs. the dollar on Tuesday. Speaking to CNBC, British Trade Secretary Liam Fox claimed that their offer to the EU is fair and reasonable and they want to avoid a hard-Brexit. Meanwhile, Prime Minister Theresa May travelled to Africa to solidify their trade relationships with the continent’s nations ahead of the March deadline. According to Sky News, Theresa May told reporters that a no-deal Brexit wouldn’t be the end of the world and reiterated that the government needed to be prepared for the possibility of a no-deal Brexit.
On the other hand, while appearing in a joint news conference with his Irish counterpart Simon Coveney, Germany’s Foreign Minister Heiko Maas said that Berlin wanted to avoid a disorderly Brexit but the government was preparing for such an outcome nonetheless. According to Maas, if the sides could agree on the critical Irish border issue, they could easily solve all the other open questions. Lastly, during an interview with CNBC, the U.S. Treasury Secretary Steven Mnuchin explained that their similarities would allow them to do a trade deal very quickly with the UK.
US Dollar – US Markets
The monthly report published by the U.S. Census Bureau showed that the trade deficit rose to $72.2 billion in July from $67.92 billion in June and missed the market expectation of $68.6 billion. “Exports of goods for July were $140.0 billion, $2.5 billion less than June exports. Imports of goods for July were $212.2 billion, $1.8 billion more than June imports,” the publication read. Further details of the report pointed out that following a 0.1% expansion in June, wholesale inventories grew 0.7% in July.
The Federal Reserve Bank of Richmond announced that the business activity in the manufacturing sector continued to expand at an accelerated pace in August with the headline Manufacturing Index of the survey improving to 24 in August from 20 in July compared to analysts’ estimate of 18. “Employment and wages continued to rise, yet manufacturing firms continued to struggle to find workers with the skills they needed, as this indicator dropped to −17, its lowest value on record. Firms expect this struggle to continue in the next six months but anticipate sustained employment growth as well,” Richmond Fed said.”Respondents reported slower growth in both prices paid and prices received in August as the rise in prices paid continued to outpace the growth of prices received.”
The last data of the day from the U.S. on Tuesday revealed that the Conference Board’s Consumer Confidence Index soared to its highest level in 18 years as it jumped to 133.4 in August from 127.9 in July. Commenting on the data, “Consumers’ assessment of current business and labour market conditions improved further. Expectations, which had declined in June and July, bounced back in August and continue to suggest solid economic growth for the remainder of 2018. Overall, these historically high confidence levels should continue to support healthy consumer spending in the near-term,” said Lynn Franco, Director of Economic Indicators at The Conference Board. Nevertheless, the US Dollar Index extended its losses for a third straight day to suggest that the greenback continued to weaken against other major currencies.
Euro – European Markets
The European Central Bank reported that private loans grew by 3% on an annual basis in July to meet the experts’ estimate. On the other hand, M3 money supply expanded by 4% in July following June’s 4.4% increase but was largely ignored by investors.
Earlier in the day, Bloomberg reported that the U.S. President Donald Trump and German Chancellor Angela Merkel agreed to hold further talks regarding the trade relations between the U.S. and the European Union to provide an additional boost to the shared currency. The euro continued to outperform its rivals and rose to its highest level against the dollar in nearly a month.
What’s coming up?
UK: Nationwide Housing Prices will be the only data release from the UK on Wednesday.
US: The U.S. Bureau of Economic Analysis will publish its third estimate for the second quarter real-GDP growth on Wednesday. The report will also include the core personal consumption expenditures (PCE) prices. Later in the day, the National Association of Realtors will release the pending home sales data.
EU: Germany’s Consumer Confidence Index released by the Gfk will be featured in the European economic docket on Wednesday.