Sterling Steadies as Boris Johnson Leads Leadership Race
What’s been happening?
Pound Sterling – UK Markets
The British pound stayed relatively quiet throughout the day on Thursday and posted small gains vs both the dollar and the shared currency. In the absence of significant macroeconomic data releases from the UK, investors remained focused on political developments.
Boris Johnson, one of the candidates to succeed British Prime Minister Theresa May, received 114 votes to lead the first round of leadership contest. Andrea Leadsom (11), Mark Harper (10) and Esther McVey (9) got knocked out of the contest. "Thank you to my friends and colleagues in the Conservative & Unionist Party for your support. I am delighted to win the first ballot, but we have a long way to go," Johnson tweeted out.” Jeremy Hunt, who came second with 43 votes, also said that he was pleased with the outcome and added that this serious moment “calls for a serious leader."
US Dollar – US Markets
The U.S. Bureau of Labor Statistics reported that import prices declined 0.3% on a monthly basis in May and dragged the annual rate down to -1.5% amid falling energy prices. Moreover, exports prices in the same period 0.2% and 0.7% on a monthly and yearly basis, respectively. Finally, the weekly initial jobless claims rose to 222,000 in the week ending June 7 and came in slightly worse than the market expectation of 216,000. Nevertheless, none of Thursday’s macroeconomic data releases was able to impact the greenback’s market valuation and the US Dollar Index, which gauges the dollar against a basket of six major currencies, finished the day virtually unchanged following Wednesday’s decisive rebound.
Meanwhile, The Wall Street Journal reported that more than 75% of 46 economists who took part in its latest survey said that they expected the Fed’s next policy move to be a rate cut. "Nearly 40% of the 46 economists anticipated the central bank would act in July, while roughly 30% expected a rate cut in September," the article read. Later in the day, during an interview with CNBC, White House economic adviser Larry Kudlow argued that the Fed went too far with its last rate hike in the last quarter of 2018 as shown by the bond market.
Euro – European Markets
The shared currency weakened against the pound sterling for the third straight day on Thursday and posted modest losses vs. the dollar as well. The data published by the Eurostat showed that industrial production in the euro area contracted by 0.5% on a monthly basis. On the other hand, Germany’s Destatis announced that inflation in Germany, as measured by the Consumer Price Index (CPI), stayed unchanged at 0.2% and 1.4% on a monthly and yearly basis, respectively, in May.
While speaking to reporters at the euro zone finance ministers meeting in Luxembourg, International Monetary Fund (IMF) Chief Christine Lagarde said that there was a risk that the euro area could slip into a prolonged period of low growth and low inflation. According to Lagarde, risks to euro zone include escalation of trade tensions, no-deal Brexit and the lack of structural reforms in some countries. “Next EU Commission should come up with incentives for countries to pursue structural reforms,” Lagarde said.
What’s coming up?
UK: There won’t be any macroeconomic data releases from the UK on Friday and investors will remain on the political headlines.
US: Retail sales and the University of Michigan’s Consumer Sentiment Index will be featured in the U.S. economic docket.
EU: European Central Bank Governing Council members Lautenschlager and De Guindos will be delivering speeches on Friday. Destatis will release wholesale price index for Germany as well.