No respite for Sterling despite upbeat housing data
Downside pressure continued to build against the Pound during Tuesday’s session, despite upbeat UK house price data and a relatively quiet economic calendar elsewhere. Even the fact German industrial production came in lower than forecast failed to stop GBP/EUR from finding fresh lows for the year as the market continues to price in the idea that no deal will be found ahead of the UK’s departure from the European Union.
We have an incredibly quiet day ahead with very little of note on the economic calendar. US weekly mortgage application data is slated for publication at 12pm BST although it seems unlikely that this will have the ability to do anything more than make the smallest impression on the dollar’s performance. The dollar index may have backed away from recent highs, but it remains well above the 95 level.
There’s also a US bond auction scheduled for 6pm BST which could be worth watching. US tax reform is costing the government dearly so there’s a need to raise more money this time round. Combine that with rising interest rates and the potential for inflation to be running ahead of expectations when that’s released later in the week and there’s a good chance the bonds will deliver their highest yield in 7 years. We saw a run earlier in the year when yields on the 10 year exceeded 3% and this threatened to initiate an equity market crash. If today’s auction sees the new bonds come to market at over 3% then that could be a buy signal for dollars - and in turn serve a blow to what remains an inflated stock market.
Thursday morning sees the ECB publish its economic bulletin for July so this could provide some stand-alone direction for the Euro. Aside from yesterday’s divergence, the common currency has been tracking the Pound’s fortunes closely in recent weeks, where the tone has been almost universally negative. Some fresh optimism over the health of the Eurozone economies here could well lend meaningful support to the Euro in the near term.
The Pound slid a little lower again yesterday, posting fresh lows for the year. We’re still a couple of cents above the lows from August 2018, but there’s not much around to cheer the Pound right now. The pair has posted losses over 13 of the last 17 weeks.
Yesterday saw the pair break its five day losing run and as a result, pull away from that threat of testing fresh lows for the year. Whether it can now escape the range-bound trading we’ve seen over the last couple of months remains to be seen.
The Pound lost ground over the Euro during yesterday’s session and now sits at fresh lows for the year. The market is struggling to find value in Sterling even at these depressed levels.