Sterling extends its losing run

Today's news headlines:

  • 'Pound approaches 2019 low as pressure on Theresa May intensifies’. The Prime Minister may be attempting to rewrite the Brexit bill yet again, but with heavy losses expected for the Conservative Party in the European elections, and mounting political risk as Theresa May’s departure likely moves closer, Sterling's weakness is unsurprising. (Financial Times)
  • 'Dollar retreats from two-year high overnight, set for weekly loss’. The US-China trade dispute may be more damaging for the world’s largest economy than originally thought and could drive a Federal Reserve rate cut. (Reuters)
  • 'ECB chiefs lose confidence in recovery’. Minutes from the European Central Bank’s (ECB) policy meeting last month expressed concern over weakening Eurozone growth. This suggests some ECB intervention might be in the wind. (The Times)

Persistently poor PMI

Yesterday a series of Purchasing Manager Indexes (PMI)—forward-looking survey data of business leaders—was released for the Eurozone. A minor rebound was anticipated for both services and manufacturing outlooks, but instead, the numbers, excluding France, showed deterioration in sentiment. German manufacturing, which is strongly tied to China, has been in the spotlight over the past year and posted a fourth consecutive figure below the 50.0 ‘no-change’ level. To put this in perspective, this is the worst German Manufacturing PMI reading since July 2012. Markit said: 'Manufacturing output fell for the fourth month in a row, though the rate of decline slowed for the second month running and was the weakest since February.'

And now a pullback

After consolidating at the top of YTD trade-weighted highs for the best part of this week, the Dollar pulled back yesterday. Brent Crude, which had risen from 54USD per barrel at the start of the year and reached 75USD per barrel in late April, sold off nearly 5.0% yesterday. The Dollar and oil—which is denominated in USD—typically trade in opposition to one another, but yesterday there was a common denominator: a reassessment of global growth prospects. A Bloomberg article released this morning attributed this reassessment to the escalation of the US/China trade dispute, but it might be too soon to draw such a firm conclusion. Both oil and the US Dollar, not to mention US denominated equities, have been hovering at highs, so a pullback isn’t extraordinary.


Yesterday the Pound tested year lows against the US Dollar with the pair having at one point lost almost 4.5% since the start of the month. While political uncertainty remains high in the UK, the US Dollar will continue to have some safe-haven allure.


The Euro tested two-year lows against the US Dollar, falling US yields signalling a shift into safe US Treasuries. This mirrors the European Central Bank’s dour meeting minutes expressing concern over the Eurozone economic recovery. Despite all of this, on a trade-weighted basis, the EUR has hardly budged, which casts some doubt over the complete shift in investor outlook.


The Pound continued its record losing streak lower against the Euro yesterday, clocking up a fourteenth successive day of declines. The Pound Index sits about 2.0% below the 200-day moving average, which in turn, is just 2.0% higher than December’s two-year lows.