What’s been happening?

Pound Sterling – UK Markets 

The Monthly Industrial Trends survey released by the Confederation of British Industry (CBI) on Tuesday showed a reduction in total orders with the July figure easing to 11 from June 13. Further details of the publication revealed that input price pressures continued to increase, suggesting a pickup in inflation in the medium-term. This data helped Sterling gain traction against its rivals and retraced the majority of the previous day’s losses. On Monday, while delivering a speech to London’s Society of Professional Economists, the BoE Deputy Governor Ben Broadbent argued that the unwinding of QE could create disinflationary pressures and force the BoE to consider a rate cut. The GBP/USD pair added over 50 pips in the hour following the release to touch a session high at 1.3140. 

In the meantime, in a written statement on Tuesday, Downing Street announced that Prime Minister Theresa May would be taking personal control of the Brexit negotiations and relegate the government's Brexit department. Although it seemed that political experts failed to reach a consensus as to whether or not this development would help the UK achieve a desired Brexit deal, the market’s initial reaction was GBP positive. The GBP/USD pair extended its gains to a daily top at 1.3160 in the early NA session before going into a consolidation phase in the 1.3140-50 band, and the EUR/GBP pair dropped to a fresh six-day low near 0.8890.

US Dollar – US Markets

The Housing Price Index released by the Federal Housing Finance Agency (FHFA) showed a 0.2% increase in house prices in May compared to analysts’ expectation of 0.4%. According to the publication, price changes in nine census divisions ranged from +4.9% to +9.1% on a yearly basis.

The Markit Manufacturing PMI ticked up to 55.5 in the preliminary July estimate from 55.4 in June to suggest healthy activity in the sector. Sub-categories of the index showed small changes with New Orders advancing to 55.36 and Employment easing to 54.73 from 54.76. On the other hand, the Markit Services PMI slipped to 56.2 in the preliminary July estimate from 56.5 in June to inch further away from May’s 56.8. Regardless of the slowdown in the business activity, Output Prices sub-index rose to 56.05 from 54.64 to reflect higher prices at the consumer level.

Following the mixed PMI reading, the US Dollar Index, which tracks the buck against a basket of six major currencies, slumped to a daily low at 94.40 but staged a recovery in the late NA session to turn flat on the day near the 94.60 area.

Euro – European Markets

The Markit Services for Germany showed that business activity in the sector expanded at a higher-than-expected pace in July. More importantly, after declining for six months, the Manufacturing PMI for Germany rebounded sharply to 57.3 from 55.9 to provide a boost to the shared currency. However, although the Markit Manufacturing PMI for the euro zone improved to 55.1 from 54.9, Services and Composite PMI missed experts’ estimate as they fell to 54.4 from 55.2 and 54.3 from 54.9 and didn’t allow the Euro to maintain its bullish momentum. The EUR/USD pair struggled to set a short-term direction as it fluctuated in a tight 30-pip range on Tuesday.

Elsewhere, the European Union Trade Commissioner Cecilia Malmstrom announced that she would be joining EU President Juncker and US President Donald Trump to discuss their trade relations and to “try to de-escalate the situation.”

What’s coming up? 

UK: The British Bankers' Association (BBA) will be publishing Mortgage Approvals, a low-tier data, ahead of the Confederation of British Industry’s Distributive Trades Survey.

US: Change in new home sales released by the Census Bureau is expected to show a 2.8% contraction in June. Monday’s Existing Home Sales report released by the National Association of Realtors revealed that rising house prices were weighing on sales and a negative reading shouldn’t be a big surprise. Furthermore, investors are likely to remain on the sidelines ahead of Friday’s critical Q2 real-GDP growth numbers.

EU: The ECB is going to publish the change in private loans and M3 money supply. Loans are expected to rise to 3% in June from 2.9% in May on a yearly basis, and the M3 figure is unlikely to receive a reaction from the market.