Global Themes

Euro rallies while PM May faces showdown  
- BOE gives pound hope after Brexit strikes again 
- Dollar traders concern over G-7 summit 
- Euro eyeing huge weekly gain

GBP

BOE gives pound hope after Brexit strikes again
A mixed day of news in the UK saw Sterling just hold onto the $1.34 handle against the US Dollar, but fall back below €1.14 against the Euro.

The British Pound initially dropped as Brexit concerns continued to dominate headlines. The Prime Minister Theresa May held a series of meetings with key pro-Brexit cabinet ministers yesterday to try and avert their fears over the ‘backstop’ plans around the Irish border. After discussions with Secretary of State for Exiting the European Union (EU), David Davis, details were unveiled that if a deal on Northern Ireland still hasn’t been reached, the border would continue to be aligned with EU regulation’s after the transition period ends in December 2020. After pressure from Mr Davis, a date was set for this to be resolved no later than December 2021, after it was initially left open ended (source: Guardian).

Sterling struggled after this news, as it is believed this will appease neither hard-line Brexiteers, who pushed for a definitive date to be set, nor the European Union, who have yet to agree to the plans (source: BBC). Foreign Secretary Boris Johnson was recorded at a private dinner making comments that further highlighted the discord in the cabinet over Brexit. Mr Johnson reportedly said that it was “beyond belief” that the Irish border had become such a stumbling block, despite the problem being raised at a very early stage in negotiations and that, “you’ve got to face the fact there may now be a meltdown’’ (source: Buzzfeed).

The pound was able to offset some of the Brexit woes after comments from the Bank of England’s (BOE) Dave Ramsden. Mr Ramsden, who has previously voted against increasing interest rates, said that an “ongoing tightening of monetary policy over the forecast period” was suitable after recent economic data releases (source: Bloomberg). Markets are now pricing in a 60% chance of a 25 basis point interest rate rise when the BOE meets in September (source: Reuters). The Confederation of British Industry (CBI) have sounded a note of caution this morning though, stating that they expected the growth rate for the British economy to slow to 1.4%, from 1.8% last year (source: Guardian).

USD

Dollar traders concern over G-7 summit
Traders will be listening with intent for any developments at the G-7 summit meeting held today and tomorrow in Quebec, Canada.

There is clear tension between the US and other economies, with US President Donald Trump’s protectionist stance on his economy. It will be a tall ask for leaders of the G-7 to try and talk the US President down from his tough stance against China, and seemingly the rest of the world, especially as he has lashed out at the Canadian PM and French President overnight on Twitter. The US Dollar could fall further if uncertainty persists.

Yesterday saw the dollar index continue its negative trend, down 0.39% on the day and trading as low as 93.213. EUR/USD saw the Euro claw back more territory, managing to peak out at a fresh 3-week top of $1.1840. This morning however we have seen the EUR/USD under pressure, falling further away from the $1.18 handle. USD/JPY has recently traded in a tight range, bouncing on either side of the ¥110 mark. The currency pair remains over 5% higher from the 2018 lows.

EUR

Euro eyeing huge weekly gain
Bolstered by positive comments by a number of European Central Bank (ECB) policymakers this week, market participants have been buying the Euro in anticipation of an upbeat policy meeting next Thursday.

Hopes that the stimulus program could end this year, and rate rises to begin at some point in the second half of 2019, have overshadowed the ongoing political noise from Europe so far. From mid-April until June 1st, EUR/USD tumbled over 7% as the increasing demand for the US Dollar and political jitters from Europe dominated the currency market. This 6-week downward spiral on EUR/USD was thwarted last Friday, with the Euro eventually finding some welcome support around $1.15 and rebounding back above the $1.16 handle. Now the currency pair looks set for its biggest weekly advance since February this year, flirting with the $1.18 handle.

Following a much-needed positive run of daily gains for the Euro this week, the sentiment around the common currency has once again turned somewhat negative this morning. German industrial production contracted to -1% m/m in April, much worse than the forecast of 0.3%. The Eurozone continues to reveal weak economic data and the signs of deceleration must be concerning traders hoping for a “hawkish” ECB meeting. The Euro had been gaining momentum thanks to the growing expectations that the ECB would give guidance on when it plans to wind down its current stimulus programme.

With little more top-tier economic data due from Europe today, traders will likely turn their attention towards the tense G-7 summit over the next two days.




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