Sterling volatile ahead of the June EU Summit
What’s been happening?
Pound Sterling – UK Markets
UK mortgage approvals hit a four-month high in May, with an increase to 39,244 from 38,327 previously, but still down more than 4% compared with a year ago. The new Bank of England rate-setter Jonatan Haskel expressed a more negative assessment of Britain’s readiness for higher interest rates than the official he is due to replace. Haskel pointed to persistently weak wage growth and said there could be more slack in the labour market than currently projected. Workers’ bargaining power was said to have been weakened by the greater global mobility of capital and technological change. Haskel’s remarks pushed the Pound lower against other major currencies.
However, BoE Policy Committee member Ian McCafferty reiterated his view yesterday that the central bank should not “dally” over rising rates, and that a recent fall in inflation was likely to slow later this year. However, this failed to strengthen the Pound, as his view has already been priced in.
US Dollar – US Markets
The US consumer confidence index fell well below economists’ expectations in June, fuelled by a bleak outlook for US economic conditions. CPI declined to 126.4 from a revised 128.8 in the previous month and below the 128.1 markets’ expectation. Positive feelings for future business conditions and income prospects decreased, however sentiment toward labour markets was unchanged with unemployment at 18-year low of 3.8%. "While expectations remain high by historical standards, the modest curtailment in optimism suggests that consumers do not foresee the economy gaining much momentum in the months ahead,” said Lynn Franco, Director of Economic Indicators at The Conference Board.
The Philadelphia Fed non-manufacturing survey declined to 39.1 for June from 45.3 previously, however, confidence in the 6-month outlook strengthened. The Richmond Fed manufacturing index strengthened to 20 from 16 previously and slightly above consensus expectations. The Dollar, however, failed to make any big gains as trade activity continued to overwhelm the US market.
Euro – European Markets
The Euro was unable to make sharp gains against other major currencies in early Europe trading on Tuesday and drifted lower during the day. The single currency was hindered by ongoing concerns surrounding the German government’s stability as internal disagreements regarding the immigration policy have left markets speculating about a possible new election in 2018.
The credibility of the European Central Bank could be affected if the political/economic environment continues to change at a fast rate, forcing the bank to renege on its earlier guidance, possibly pushing the first rate hike out to 2019.
What’s coming up?
UK: Markets will be focusing on the beginning of the European Union summit tomorrow, where the progress of Brexit negotiations will be analysed and an insight into UK’s future out of the EU should be provided.
US: The US Markets will be looking at Durable Goods Orders for the month of May out today. Q1 Gross Domestic Price index as well as Core Personal Consumption Expenditures will be out tomorrow.
EU: Euro markets will be looking ahead to Germany’s Gfk Consumer Confidence Survey for the month of July out tomorrow morning, followed by Germany’s Preliminary Harmonized Index of Consumer Prices released in the afternoon.