Yesterday a combination of upbeat US economic data and fresh Brexit uncertainty was responsible for driving Cable down to two-month lows, contrasting with the Euro’s more resilient performance. The parliamentary recess appears to have brought nothing new to the cross-party Brexit talks, so not surprisingly, the pressure on Theresa May to stand aside continues to build. As a result, the Pound is likely to remain under pressure for some time, even if economic data continues to impress.
The Greenback found strength yesterday after better-than-expected Existing Home Sales data emerged, eclipsing the weakness seen on Monday from a fall in the equivalent figure for new properties. This is setting the scene for Friday’s US Gross Domestic Product (GDP) print which many are becoming increasingly confident over. Any reading above the expected 2.2% could drive the Federal Reserve to adopt a more hawkish tone. A strong reading could once again pit the Fed against the White House, and as has been seen before, the pressure exerted by Donald Trump has been sufficient to lead the US Dollar lower. There’s no reason to believe Presidential criticism of monetary policy will relent any time soon.
The Pound is residing at the very bottom of a two-month range on a trade-weighted basis, but there is evidence in the market that this isn’t a universally accepted direction of travel. Speculative institutional investors have begun betting heavily on Sterling appreciation, despite any clear catalyst for this stance. Only time will tell who is correct.
After a reasonable rally in Euro fortunes last week, the common currency has experienced a sell-off as enthusiasm for risk assets cools. Today’s German data should provide a basis for continuation or upset of the risk asset rally.
Despite some volatility during yesterday’s session as many returned to work after the long weekend, the Pound continues to trade broadly sideways against the Euro. If UK economic releases continue to impress, this may be sufficient to counter downside pressures from Brexit, but any weakness in the fundamentals has the potential to initiate another move lower.