Pound slides as Trump wades into Brexit bedlam

Today’s macro highlights:

  • USD - University of Michigan Consumer sentiment (July)
  • USD - Federal Reserve Monetary Policy report to Congress

Pound slides as Trump wades into Brexit bedlam

There were no real surprises in yesterday’s economic data, but Sterling has found itself in focus over the last few hours with selling being seen off the back of comments made by Donald Trump. He was hosted by Theresa May alongside business leaders for a dinner at Blenheim Palace last night and cautioned that a soft Brexit would ruin the UK’s prospects of striking a trade deal with the US. With some suggestions circulating that the remaining EU member states might just accept the UK’s proposals over how any future customs union may look, the Pound could well find itself under yet more pressure as the summer continues.

We have another quiet day ahead in terms of economic data but the point to watch for today will be further indications over the Federal Reserve’s ability to keep hiking interest rates. Yesterday’s CPI reading came in at 2.9% which is arguably hotter than the central bank would like to see, but any cooling of the University of Michigan sentiment reading at 3pm BST will present something of a dilemma. The Federal Reserve doesn’t want to end up in a position whereby it’s trying to damp down inflation with rate hikes whilst stubbing out economic growth at the same time. Donald Trump’s trade tariffs may however see this scenario being realised.

On that very same theme, at 4pm BST the latest Federal Reserve Monetary Policy report will be submitted to Congress. This is published twice each year and contains details of monetary policy conduct, economic developments - and most importantly - prospects for the future. This has the potential to give some notable clues as to where the Federal Reserve believes inflation will flow next.

Looking into next week, the fundamentals will pick up notably with the release of UK Unemployment and Average Earnings on Tuesday then UK CPI data on Wednesday. Again these will give meaningful clues over the likelihood of a Bank of England rate hike next month - something that the market is growing increasingly confident about. With that in mind, anything that suggests Mark Carney’s team might just be willing to sit back for one more cycle would have the potential to realise some marked losses for the Pound - even from these current depressed levels.

GBP/USD
Pressure was seen off the back of last night’s comments by Donald Trump regarding a soft Brexit not being compatible with a US trade deal. This has the potential to further weaken Theresa May’s position and any prospect of a leadership challenge would heap further pressure on the Pound. 

EUR/USD
After Wednesday’s marked sell-off, the pair saw very little movement during yesterday’s session. With no meaningful data due for release from the Eurozone in the run up to the weekend break it could be another quiet session, although read across from any politically-driven GBP weakness could weigh.

GBP/EUR
The Pound understandably came off worse following Trump’s comments last night and the pair continues to sell-off now. That said, overall direction remains limited and the pair has been stuck in a range of not much more than one cent for almost three weeks now.