Pound's freefall continues despite the upbeat employment report
What’s been happening?
Pound Sterling – UK Markets
It seemed like the pound was getting ready to recover its losses against its peers after staying relatively stable on Monday. Although the monthly report released by the Office for National Statistics showed that the unemployment rate fell to its lowest level in more than four decades at 4%, the sterling failed to gather strength as the possibility of a no-deal Brexit stayed in investors’ crosshairs.
Speaking to reporters in Helsinki, British foreign secretary Jeremy Hunt said that the risk of a no-deal Brexit has been increasing significantly recently and added that everyone needs to prepare for the possibility of a chaotic divorce from the EU. According to Hunt, the European Commission needs to change its approach on Brexit.
Meanwhile, the underlying details of the ONS’ employment report revealed that average weekly earnings for employees in Great Britain in real terms increased by 0.4% excluding bonuses, and by 0.1% including bonuses, compared with a year earlier.
US Dollar – US Markets
On the back of optimistic comments from Turkish officials, the TRY finally found its footing and began retracing its losses against the dollar. In the American trading hours, however, the greenback gained traction, and the US Dollar Index rose to its highest level of the year 96.80. Although there were no significant macroeconomic data releases from the U.S., the upbeat performance of the T-bond yields amid an improved market sentiment seemed to have provided a boost to the buck.
According to the monthly report published by the U.S. Bureau of Labor Statistics on Tuesday, prices for U.S. imports stayed unchanged in July while export prices declined 0.5% in July following June’s 0.2% increase. On the other hand, in its Quarterly Report on Household Debt and Credit, the Federal Reserve Bank of New York announced that the total household debt increased by $82 billion (0.6%) to $13.29 trillion in the second quarter of 2018.
Euro – European Markets
The data released by the Eurostat on Tuesday revealed that the seasonally adjusted GDP rose by 0.4% in both the euro area (EA19) and the EU28 during the second quarter of 2018. Although this reading beat the analysts’ estimate of 0.3%, the market reaction was fairly limited as it was not seen as a surprise following the higher-than-expected GDP growth numbers from Germany. “During the second quarter of 2018, GDP in the United States increased by 1.0% compared with the previous quarter (after +0.5% in the first quarter of 2018). Compared with the same quarter of the previous year, GDP grew by 2.8% (after +2.6% in the previous quarter),” the Eurostat added. On a negative note, a separate report showed that the industrial production in the eurozone contracted by 0.7% in June after expanding by 1.4% (revised from 1.3%) in May.
Nonetheless, today’s data failed to help the shared currency offset its losses vs. the dollar. Against the pound, the euro was virtually unchanged on the day on Tuesday.
What’s coming up?
UK: The Office for National Statistics (ONS) will release the Consumer Price Index, Producer Price Index, and Retail Price Index figures. On a yearly basis, the CPI is expected to tick up to 2.5% in July from 2.4% in June. A higher-than-expected inflation number could provide a boost to the pound as it would suggest that the BoE may need to consider its stance on further rate hikes.
US: NY Empire State Manufacturing Index, retail sales, industrial production, capacity utilization, and nonfarm productivity data will be featured in Wednesday’s economic calendar in the U.S.
EU: There won’t be any macroeconomic data releases in the eurozone on Wednesday and investors will be looking for headlines from the EcoFin meeting.