Sterling found itself rattled once again during an otherwise quiet start to the week, after UK Trade Secretary Dr Liam Fox suggested that a non-deal Brexit would be the most likely outcome of the country’s attempts to extract itself from the European Union. Markets are understandably focused on this, rather than the more granular economic data indicating what has happened in the previous month or quarter. Given the doomsday-like scenarios painted by some commentators as to where the Pound will fall to if no deal is struck, this is perhaps hardly surprising.
This focus on the forward-looking prospects of the Pound also goes some way to explaining how the markets managed to brush off a sharp contraction in the British Retail Consortium’s July like-for-like sales figure which was released overnight. Forecasts of a 1.5% increase may have seemed toppy given the recent bout of unseasonably hot weather, but even the notable undershoot failed to register on Sterling’s fortunes.
The day ahead is again rather quiet in terms of the fundamentals with the latest Halifax House Price data due for release at 8.30am BST. We’ve seen many of the house builders report earnings in recent weeks - these are healthy and supported by a plentiful supply of mortgages, so there’s no real expectation of a slowdown being seen here, even with the uncertainty of Brexit.
3pm BST this afternoon sees the publication of the US JOLT Jobs Opening report for June. Again, a relatively low-level indicator, but pickings are rather slim for the day ahead. Last week’s employment data broadly impressed so there’s no real expectation of any surprises here, but with the impact of Trump’s trade tariffs still very much under scrutiny, a notable miss of expectations could lead to some short-term dollar weakness.
Right now however, the focus on the political backdrop - for the Pound and by virtue of read-across for the Euro too - seems almost unprecedented. The UK government has the next seven and a half months to navigate uncharted territory. By all accounts, there’s probably a leadership challenge to be contested and we can’t rule out a general election, either. It seems fair to say that this certainly isn’t going to be an August where you can afford to take your eyes off the market.
The pair tested 11 month lows during yesterday’s session and although we’ve seen a rebound, it’s merely been a token one, with the market seemingly poised for the next leg lower.
The Euro posted a fifth day of declines against the dollar - that’s only the second time such a run has been posted this year. The message seems clear that the Euro has quite a lot at stake from the UK’s exit from the European Union, although with the benefit of making exports look more attractive, some policy makers have little to worry about.
Any hopes that the Pound could reverse its downward trend against the Euro were seemingly defeated yesterday, although there does seem to be a tendency for the market to be finding value around current levels.