Sterling takes another nosedive as government prepare for no-deal Brexit

Today’s macro highlights:

  • USD - US PPI (July)
  • USD - US Wholesale Inventories (June)

Sterling takes another nosedive as government prepare for no-deal Brexit

Wednesday proved to be another ruinous session for the Pound, with meaningful losses being posted against both the dollar and Euro as it was announced that the Cabinet would meet in September to plan for a no-deal Brexit. There may be some light on the horizon for Sterling as hopes are running high that tomorrow’s GDP print could impress, but every time we hear the ‘no-deal’ mantra being repeated, the Pound is inevitably going to face another shake down.

The day ahead is again quiet in terms of the fundamentals. US PPI readings for July are set for publication at 1.30pm BST and any slowdown here could serve to arrest gains for the dollar. PPI is seen as a forward leading indicator for wider inflationary pressures - the Fed is having to take an aggressive stance in a bid to manage consumer demand, so anything that points towards a less hawkish interest rate policy could be seen as negative for USD.

US wholesale inventories are also published at 3pm today. Again, this has the ability to provide some broader direction for the US dollar - if wholesalers are building inventories then this suggests burgeoning consumer demand, and that’s something that calls for tighter monetary policy in return. Expectations are however for no change to be seen month-on-month.

The ECB publishes its latest monthly Economic Bulletin this morning, which will detail the justification for the latest monetary policy decision. With expectations still being that the QE programme can be concluded this year and the first-rate hike in a decade will take place by next Autumn, anything that serves to knock this opinion will be negative for the Euro.

Looking further ahead, we have a slew of UK economic data out tomorrow morning. The latest GDP reading may be the obvious headline grabber, but other metrics - including imports and exports - will be worth watching, too. This really does offer the Pound a chance to stage a recovery from its beaten down position, although with the prospect of a no-deal Brexit still very much on the table, any gains could prove incredibly short lived.

GBP/USD

The Pound continues to career towards the lows from August 2017. As we saw yesterday, each reference to a no-deal Brexit has the potential to weaken the Pound and it seems inevitable that this is a line we’re going to keep hearing in the weeks that lie ahead. 

EUR/USD

The pair traded in a relatively tight range yesterday but managed to once again build on those gains after hitting two month lows at the start of the week.

GBP/EUR

Another day of losses for the Pound against the Euro with some genuine divergence being seen between the two currencies right now. Tomorrow could provide some respite given the mass of UK data set for publication, but unless we see anything particularly negative out of the Eurozone, sustaining the upside will prove challenging.