Sterling collapses on back of dovish BoE arrival

Today’s macro highlights:

  • USD - Durable Goods Orders (May)

Sterling collapses on back of dovish BoE arrival

As we noted yesterday, the testimony of Jonathan Haskel, the economist who will be appointed to the Bank of England’s Monetary Policy Committee in September, was tipped to send a subtle signal to the market over his rate bias. The impact was perhaps rather more pronounced however, with his evident dovish bias culling almost half a cent off GBP/USD. It does seem as if recent gains for the pair have always been looking somewhat strained, the market has wanted an excuse to book profits and resume its downward trend - and this call from the next member of the MPC has served up that excuse.

The day ahead is very limited in terms of economic data. Mark Carney’s comments over the Bank of England’s financial stability report will be closely followed, although the bias here is likely to remain bearish. With more doves being appointed at The Bank and that anticipated divergence between UK and EU growth rates being well documented, unless we see a markedly bullish call from the Bank of England Governor tomorrow, there’s little reason to think Sterling can find any cheer.

When it comes to the routine macroeconomic data, the release of US durable goods order numbers for May at 1.30pm BST could be worthy of some scrutiny. There is concern that the impact of US-led trade tariffs is starting to be felt across a number of indicators. Yesterday’s consumer confidence print fell short of expectations, so further readings mirroring this may raise questions over the Federal Reserve’s ability to keep hiking interest rates - something which has been instrumental in driving the greenback’s strength of late.

High profile economic data is set to remain thin on the ground until the end of the week and it seems difficult to escape the theme that anything looking even vaguely negative for Sterling will heap downside pressure on the currency. With the Brexit bill finally being enacted into law in Parliament yesterday the UK has taken another step forward down this potentially uncertain route, again serving as a reminder as to another reason why the pound is struggling to shake off downside pressures.

GBP/USD
That nascent run of daily gains for the pair came to an abrupt end yesterday. There’s still little around to lend any meaningful long term support to GBP/USD.

EUR/USD
Dovish comments from the ECB’s Peter Praet yesterday hinted that the ECB was in no rush to normalise monetary policy, so with questions being raised yet again over the timing of the end of QE, the market took this as a signal to sell down the Euro. Tomorrow’s German inflation data may offer something of a reprieve here but with central bankers appearing dovish, upside is likely to be limited.

GBP/EUR
The pair is trending lower once again, languishing close to six week lows. Until we see some news of solid UK economic growth, downside pressures have the potential to prevail.

Did you know…
A commodity currency is the currency of a country that produces large quantities of natural resources. Because of this relationship there is frequently a strong correlation between the price of the commodity and the accompanying currency. Examples of this include the Australian Dollar, Canadian Dollar, Norwegian Krone and South African Rand. Australia is the world’s second largest producer of Iron Ore, so when demand increases, prices rise and so does the value of the AUD. Conversely, if demand for exports decreases - say as a result of trade tariffs - prices will fall and so will the value of the associated commodity currency.