Brexit Negotiations Round 2 in Brussels
The week ahead is going to be big for the UK and its economy. Today, David Davis is in Brussels, accompanied by a negotiating team for a four-day round of talks with the chief EU Brexit negotiator, Michel Barnier. Talks will be concluded on Thursday and are expected to be tough since the Brexit bill and the citizens’ rights will be discussed. Tomorrow the Bank of England will publish the June inflation data, which analysts expect to come at 2.9% for a second-straight month.
On the opposite side of the Atlantic, the US Dollar is struggling because of the soft economic data, which was released on last Friday, and the failure of Donald Trump’s administration to deliver the promised tax reforms. US economists say that the reform agenda is kept hostage to the healthcare bill, which if it’s not done, Trump will be unable to proceed in fulfilling his pre-election promises.
Pound Sterling – UK Markets
Today, Sterling weakened against the US Dollar with the exchange rate set at $1.30. On the contrary, the Pound fell also against the Euro, trading at €1.14.
Brexit secretary, David Davis, is already in Brussels, where the second round of the Brexit negotiations will be launched today. Michel Barnier, who is the EU’s appointed negotiator, greeted the British minister, but they both refused to reveal more information about the upcoming four-day negotiations. Negotiators will break into four groups that will discuss four key areas of priorities, among them being the Brexit bill and the citizens’ rights on both sides of the English Channel.
On the economic front, tomorrow is the day when June’s inflation data will be published by the BoE, which is expected to affect the Sterling. Economists predict that inflation will remain steady at 2.9%, on a yearly basis, as it was also recorded in May. The weak Pound has made the prices of imported goods rise, continuing to squeeze British household budgets. The last time that inflation reached 2.9% was in June 2013.
US Dollar – US Markets
The US Dollar rallied against the Euro with the exchange rate set at €0.87. The US currency struggled, during the weekend, hitting multi-month lows against the Pound and the Euro, on the back of weak economic data released on Friday.
Data showed that consumer prices were unchanged in June, while retail sales fell for a second month in a row. The figures disappointed the analysts, triggering new doubts that the US Federal Reserve will be able to raise borrowing costs for the third time in this year. Market experts now give a 43% chance for a rate hike in December by the Fed, as it was anticipated.
However, some analysts believe that the US Dollar is lower than it should be and they think that the Trump administration has something to do with that. They suggest that investors and traders are becoming more disappointed because Donald Trump and his cabinet are not delivering the tax reforms or cuts that they have promised. According to them, the healthcare reform has been holding the economic agenda back. Trump has made clear that tax reforms can’t be implemented until the healthcare bill has been passed by Congress.
Euro – European Markets
The Euro dropped against the US Dollar, trading at $1.14. The release of the Eurozone’s inflation data for June and the ECB’s interest rate meeting on Thursday are the main drivers for the single market currency.
Eurostat published the June’s Consumer Price Index (CPI) for the Eurozone. June’s inflation came at 1.3%, on a year to year basis, according to the economists’ expectations. However, the core inflation came at 1.2%, surpassing the 1.1% reading anticipated by analysts.
Regarding Thursday’s ECB meeting, no actual policy changes are expected. However, analysts at Nomura bank believe that there is a possibility that the ECB will not be talking about increasing the pace of QE in its accompanying statement, as it did until recently. Danske Bank’s economists suggest that tapering will be discussed, in accordance with Mario Draghi’s speech in Portugal, during which he hinted at monetary policy tightening in the Eurozone.
Other Currencies – Highlights
Sterling rallied against the Australian Dollar, trading at 1.67 AUD. While the Aussie weakened against the Pound, it managed to reach, during the weekend, a two-year high against the US Dollar taking advantage of the weak economic data coming from the US. Some analysts think that the surging Aussie doesn’t mean good news for tourism, which is a key sector of the Australian economy. They suggest that if the Australian Dollar rises above $0.80, the effect would be similar to the Reserve Bank of Australia (RBA) increasing its benchmark interest rate.
The Pound strengthened against the New Zealand Dollar, trading at 1.78 NZD. The Kiwi retreated ahead of the release, by the Reserve Bank of New Zealand (RBNZ,) of the inflation data for the second quarter of the year. The RNBZ’s projection of a 2.1% rise, on a yearly basis, comes in contrast with a Bloomberg poll in which 15 economists predicted a 1.9% rise. Analysts suggest that any surprise will create a bit of currency volatility and believe that if the result exceeds RBNZ’s forecast, then the central bank may become more aggressive in terms of its interest rates.