UK Agrees to Pay Brexit Bill
The United Kingdom has, for the first time, officially acknowledged its financial obligations to the European Union (EU), according to a Financial Times report. The article suggested that Joyce Anelay, a Brexit minister, submitted a document regarding the Brexit financial settlement, to the Parliament, in which it is said that the UK recognises its obligations to the EU and the need for these to be resolved. In other news, the Scottish and Welsh governments made clear that they can’t support the great repeal bill, saying that there is a risk of human rights being undermined and accusing Westminster of attempting a power grab.
In the US, market analysts and investors are waiting for June’s headline inflation data to be published, which are expected to influence the Fed’s strategy over the hike of interest rates in the next few months. President Donald Trump, who is visiting Paris for the celebration of Bastille Day, hinted at the possibility that the US could re-join the Paris climate change accord.
Pound Sterling – UK Markets
Today, Sterling rallied against the US Dollar, with the exchange rate set at $1.29. The British Pound remained stable against the Euro, trading at €1.13.
A Financial Times report said that Great Britain explicitly acknowledged, for the first time, that it has financial obligations to the EU, after Brexit. The newspaper’s article says that a written statement by the UK government to the Parliament, noted that “the UK has obligations to the EU … that will survive the UK’s withdrawal—and that these need to be resolved.” The statement was issued by Joyce Anelay, who is an appointed Minister of State at the Department for Exiting the EU. Brussels’ officials see the acknowledgment as a step forward by the British side, in order to avoid an early clash in the negotiations.
The Office for Budget Responsibility (OBR), which is the UK’s fiscal watchdog, stated in a report that the country’s public finances are now in worse shape to withstand a recession, in comparison to one decade ago. The OBR suggests that a small drop in the UK’s underlying growth rate, after Brexit, could lead to a sizeable increase in the country’s public debt. However, the report says that the Brexit divorce bill will have a minor impact in the UK’s finances.
US Dollar – US Markets
The US Dollar fell against the Euro, with the exchange rate set at €0.87. Wall Street edged higher as the Fed appears to stay on the path of gradually hiking interest rates, and investors are expecting that export-reliant firms will announce strong earnings, during the next two weeks.
Janet Yellen, the Fed’s Chair, concluded her two-day semi-annual testimony before Congress. Yellen backtracked on her comment that we won’t be seeing another financial crisis “in our lifetime.” Senators questioned her about the statement with Yellen answering that “I believe we have done a great deal since the financial crisis to strengthen the system and to make it more resilient. I think we can never be confident that there won’t be another financial crisis.”
US inflation data for June is going to be published today. Analysts expect that inflation declined to 1.6%, year to year, in the first month of the summer. Headline inflation in May had fallen to 1.9%, on a yearly basis, which was the lowest reading in the last six months. US retail sales figures are expected to rebound by 0.1%, after dropping by 0.3% in May, supported by the firmer wage growth.
Euro – European Markets
The Euro moved higher against the US Dollar, trading at $1.14. The attention of investors and traders has shifted to the US due to the release of inflation data, and European markets seem to follow Wall Street higher, but with very small gains.
ISTAT, the state Italian statistics agency, released data regarding the country’s inflation. The figures showed that annual inflation declined, for a second month in a row, after reaching a 2% peak in April. All figures came according to analysts’ expectations.
The Euro didn’t seem to get affected from comments made by the ECB’s governing council member, Ilmars Rimsevics, who said that the ECB’s stimulus programme will continue for “at least a couple of years.” Rimsevics, speaking on a Latvian radio station, said that “inflation is now expected at 1.5% in 2017 and 1.3% in 2018, which shows that the inflation target of 2% is not met.”
Other Currencies – Highlights
Sterling dropped against the Australian Dollar, trading at 1.67 AUD. The Commonwealth Bank of Australia (CBA) published a report, which suggests the boom in Chinese tourism to Australia is providing a huge boost to the country’s economy. The report says that “the pace in tourism growth has certainly slowed, but the quantum in terms of the number of tourists continue to grow. The inflow of tourists feeds a lot of different sectors, from transport to retail, to cafes and restaurants, even the support sectors around food and deliveries.”
The Pound gained ground against the New Zealand Dollar, trading at 1.76 NZD. ANZ’s economists predict that headline inflation will ease back to 1.9% from the first quarter’s 2.2% print. ANZ’s senior economist, Phil Borkin, said that “petrol is weighing on inflation numbers around the world and that’s the case for New Zealand too, so it’s really what the details say so.” Official data on inflation will be published on the 18th July.