Delay Brexit Says IoD Report
An Institute of Directors’ (IoD) report proposes that Theresa May should extend Article 50’s negotiating period in order to have sufficient time for negotiations and to tackle problems that could damage the UK’s economy. The report says that “for businesses to plan ahead, they need to know what route the government will pursue. The UK government must take early steps to minimise the risks to business from a chaotic departure.” Yesterday, the Bank of England downgraded its growth forecasts for Britain’s economy for 2017 and 2018.
The US Dollar continues to weaken as the political turmoil in Washington intensifies. The investigation into suspected Russian meddling in November’s presidential election is gathering pace. Special Counsel, Robert Mueller, has convened a grand jury investigation in the US capital to help examine allegations of Russian interference in the election procedure. The use of a grand jury enables Mueller to issue subpoenas and compelling witnesses to testify.
Pound Sterling – UK Markets
Today, Sterling rallied against the US Dollar, with the exchange rate set at $1.31, close to a fifteen-month high. The Pound also strengthened against the Euro, with the exchange rate set at €1.10, after dropping yesterday in the aftermath of the BoE’s rate decision, which kept its benchmark interest rate stable at 0.25%.
Ben Broadbent, the Deputy Governor of the BoE, tried to relieve some of the pressure created following the BoE’s policy announcement. Broadbent spoke to BBC Radio and expressed the opinion that the UK’s economy can withstand a small rise in interest rates. “We think that the economy will continue to grow, we think that wage growth will pick up. I think there may be a possibility for interest rates to go up a little bit,” said Broadbent, who is regarded as a close ally of the Bank’s Governor Mark Carney.
Broadbent also said that the BoE’s obligation is to look at what might happen in the medium term and not just look at the present situation. The Deputy Governor added that inflation will peak in the second half of this year and that the central bank expects wage growth over the next three years. In other news, UK car sales in July dropped by over 9%. It is the fourth consecutive month that the number of cars being sold has declined.
US Dollar – US Markets
The US Dollar weakened against the Euro, with the exchange rate set at €0.84. Investors and traders are waiting for the release of July’s Nonfarm Payrolls data by the US Department of Labour later in the day.
In June, the number of new jobs created in all non-agricultural business in the US was 222,000. Economists expect that the number in July will be more modest, coming at 183,000. They also predict that the unemployment rate will drop by 0.1% from the current 4.4%. ING’s economists suggest that even a strong rebound in wage growth in today’s report won’t change the market’s view on the Fed’s interest rate hikes. They note that the markets are not convinced about the Fed’s ambitious plan to raise interest rates once more in 2017 and three times during 2018.
The National Federation of Independent Business (NFIB) published a report, which indicated that the US has a talent shortage. According to the report, six out of ten small businesses have plans to boost their workforce, which is the biggest share in more than ten years. However, 35% of them reported a difficulty in filling positions in June. Finding an appropriate candidate is the second most important problem faced by companies. Business owners, who participated in the survey, said that skills mismatch, weak work history and unrealistic wage expectations are the primary reasons for the difficulties they face in hiring employees.
Euro – European Markets
The Euro rallied against the US Dollar, with the exchange rate set at $1.18, very close to a two-year high. The single market currency is taking advantage of the Dollar’s weakness, while data coming from the Eurozone shows that the economy is recovering from the financial crisis.
After the positive news coming from the Italian manufacturing and services sector for July, the release of June’s retail sales data was one more positive surprise. June’s retail sales in the Mediterranean country increased by 1.5%, on a yearly basis, much better than the expected 1%. On a month to month basis, retail sales came in at 0.6%, well above the expected 0.1%.
One more reason for cheering was the data regarding the German factory orders, published by the Bundesbank. June’s factory orders, on a yearly basis, came in at 5.1%, surpassing the analysts’ expectations of a 4.4% increase. On a monthly basis, German factory orders increased by 1% in June versus the anticipated 0.5%. In other news, the Royal Bank of Scotland (RBS) is in advanced discussions with the Dutch National Bank to create a post-Brexit EU hub in Amsterdam.
Other Currencies – Highlights
The Pound slumped against the Australian Dollar, trading at 1.64 AUD. The Australian Bureau of Statistics (ABS) released data regarding June’s retail sales. In the first month of summer, retail sales grew by 0.3%, on a monthly basis, surpassing the expectations of analysts. Retail sales in the second quarter of the year rose by 1.5%. The good result overshadowed the fact that the Reserve Bank of Australia (RBA) downgraded its near-term GDP forecasts. The GDP’s growth was revised down from 3% to 2.5% for December 2017 and from 3.25% to 3% for June 2018. Ian Harper, who is a member of the RBA’s board, said that the Aussie’s surge threatens to hit the Australian economy hard, if the trend is not reversed soon.
Sterling gained a bit of ground against the New Zealand Dollar, trading at 1.76 NZD. The Kiwi remains under pressure after weaker than expected unemployment data made analysts suggest that the Reserve Bank of New Zealand (RBNZ) will continue keeping interest rates on hold for a protracted period. ASB bank pushed out its predicted timing for a rate hike until early 2019. An AmpGFX report says that the NZ First is likely to hold the balance of power, after September’s parliamentary election, and will demand inclusion of some of its populist agenda in exchange for its support in forming a government.