Today’s macro highlights:
Pound looking bullish, but another day of political risk lies ahead
Donald Trump’s jaw-boning may have scuttled Sterling on Thursday night, but his admissions on Friday that a soft Brexit wouldn’t necessarily block a UK-US trade deal gave the Pound something of a lift ahead of the weekend break. This theme of support is now being extended, despite the news that Boris Johnson will deliver a resignation statement in Parliament later today. Some commentators are drawing parallels with Geoffrey Howe, who went through a similar process back in 1990, marking the beginning of the end of Margaret Thatcher’s tenure. Others however believe that Boris has backed himself into a corner. Regardless of what happens, we do finally seem to be moving towards knowing just how Brexit will be implemented - and such certainty will typically be welcomed by markets.
Aside from the political agenda, the week ahead is getting off to a relatively quiet start although that US Advance Retail Sales print due at 1.30pm BST will attract some attention. On Friday, the University of Michigan consumer sentiment reading fell short of expectations, but that didn’t stop the Federal Reserve from painting an upbeat picture of the economy in its bi-annual monetary policy report to congress. However, with rising inflationary pressures off the back of the trade tariffs being implemented on many imports into the US, the Federal Reserve really needs to be able to keep hiking interest rates as planned. Any slump in today’s sales figures would have the potential to weigh on the dollar, albeit maybe only in the short term.
Looking forward to Tuesday, this could see some pivotal news with regard to the idea of a Bank of England rate hike next month. UK unemployment - and perhaps more significantly the wages data - will be keenly watched as anything at or better than expected here would really heap pressure on Mark Carney’s team to make the move in August. As well as managing inflation, it’s important to remember that higher interest rates give the central bank the traditional ammunition needed to boost the economy in the event of an economic downturn.
The pair is almost one and a half cents higher than Friday’s lows and is continuing to advance in early Monday trade. Although we still have no clarity over how the UK’s trading position will look after March next year, it’s the hope that we’re seeing some uncertainty being removed that is providing support. A messy leadership challenge would have the potential to reverse any gains quickly.
The euro found support on Friday both on read-across from the perceived improving position for GBP and also that slightly worse than expected consumer sentiment reading from the US. Short term gains may be extended if those US retail sales figures fall short.
The Pound has recovered from the ‘Trump dump’ of Thursday but is failing to make any further progress. The Euro certainly seems to have the upper hand for now, although data supporting the idea of a BoE rate hike could tip the favour back in Sterling’s direction.