Today’s macro highlights:
Pound struggles amidst UK government in-fighting
Despite some better than expected economic data yesterday - most notably the UK Manufacturing PMI print - the pound has struggled once more, with the market very much focused on political uncertainty. Theresa May will be hosting a crunch meeting of minsters on Friday to try and find common ground to move ahead with Brexit negotiations. However, even if this can be arrived at, any proposals have to be accepted by the remainder of the EU and given the fractures facing the trading bloc right now, it’s fair to assume they will remain unwilling to offer any meaningful concessions.
9.30am BST sees the publication of the UK construction PMI reading for June. Expectations are that the number will remain static at 52.5 and with the pound struggling against the political backdrop, the risk here is weighted very much on the downside. Any overshoot is unlikely to deliver lasting support, but a shortfall will give reason to heap more pressure onto sterling.
At 10am BST we have Eurozone retail sales for May. Momentum needs to be sustained by consumers if the ECB is to have any confidence in terminating the bond buying scheme which it is using to stimulate the economy. Any suggestion this won’t be concluded before the year end is likely to weigh on the Euro as a whole. It’s also worth noting that a number of the forward-looking Eurozone PMI prints fell short of expectations yesterday too, something which is likely to continue weighing on the common currency.
US factory orders for May will be published at 3pm BST. Expectations here are for a bounce back from the contraction seen in April, something which would suggest that production isn’t be hampered by the growing number of trade tariffs being levied on US goods. With this in mind, the potential appears to be on the upside for the dollar once again, whilst the fact the DXY dollar index is off recent highs also paves the way for renewed buying of the greenback.
Political - rather than economic - risk is going to dominate the agenda here in the coming days. Unless we see some degree of accord coming from the government over its Brexit positioning, downside pressures will grow - and even if this is the case, any shortfall in economic data will be jumped upon as fresh reason to sell the pound despite the pair remaining close to year to date lows.
Again, political risk remains high on the agenda here, although the EU does appear to be stepping back from the brink following the strained conversations over the weekend regarding immigration. EUR/USD is also at risk from any suggestion the ECB will need to extend its bond buying
The pair continues to work its way lower and the risk of a no-deal Brexit has the potential to heap further pressure on the pound. Political uncertainty may be present in both London and Berlin, but again it’s sterling that has the most to lose here as the pair continues to drift lower.