Mark Carney talks down Pound as Brexit worries rise

Today’s macro highlights:

  • EUR - German Construction PMI
  • EUR - Eurozone Investor Confidence (August)

Mark Carney talks down Pound as Brexit worries rise

Thursday’s downcast assessment of the UK’s economic outlook by the Bank of England ensured that last week’s rate hike had no meaningful effect on the Pound’s value. However, Friday saw Bank of England chief Mark Carney back for more, stating that the risk of a no deal Brexit was uncomfortably high and ultimately leaving Sterling weaker than where it started the week - despite that rate hike. Sterling volatility is on the rise and so is the cost of hedging, and with no expectation of any meaningful progress being made in terms of Brexit over the summer with many politicians on holiday, this situation is only likely to worsen in the near term.

Friday’s shortfall in the US non-farm payrolls failed to have much of a lasting impact on the dollar’s fortunes, despite the subtext that trade tariffs may be taking a toll here. The previous month’s figure was upgraded, hourly earnings remained very much on track and jobs in the manufacturing sector grew by more than had been forecast. As a result, the DXY dollar index has been able to consolidate above the 95 level.

We have a rather quiet start to the week in terms of economic data, with German Construction PMI due at 8.30am BST. This print shouldn’t create any real challenges, unless we see a marked decline towards the break-even 50 level. In the event there is a significant slowdown here then once again expect the Euro to come under a degree of pressure in the short term as the market reassesses the ECB’s timeline to begin tightening monetary policy. 

9.30am BST sees the release of Eurozone investor confidence data. This survey of almost 3,000 investors and analysts looks for a six month forecast over the Euro area’s prospects and expectations are that we will see a modest increase on the level posted a month ago. Any call of confidence like this will be well received by the Euro at least in the short term, especially as it risks being dragged lower by Sterling’s woes as the UK attempts to navigate its way out of the European Union. 

Looking a little further ahead, tonight’s BRC like for like sales figures will be under scrutiny. Markets are expecting a pick up in the year-on-year reading, despite the fact that the unseasonably hot weather and England’s run in the World Cup were seen as keeping shoppers away from the high street last month. Anything above the expected 1.5% may be sufficient to give the Pound some much needed support in the quiet Asian session, but sustaining gains could still prove difficult.

GBP/USD

The pair is approaching fresh lows for the year as downside pressures continue unabated. Consensus is building however that a hard Brexit would still leave an awful lot more scope on the downside.

EUR/USD

Again, read across from the Pound’s fortunes are pushing the pair towards fresh lows for the year. A lower close today would mark EUR/USD’s first run of five successive losses since mid-May.

GBP/EUR

The Pound is managing to make some very modest gains over the Euro right now and today’s Eurozone-heavy data could have the potential to provide a little more support here, should these numbers disappoint.