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Theresa May survives another round in Westminster; BoE in focus next

Today’s macro highlights:

  • GBP - Bank of England Interest Rate Decision
  • USD - House Price Index (April)
  • EUR - Eurozone Consumer Confidence (June)

Theresa May survives another round in Westminster; BoE in focus next

Wednesday made for another subdued session for major currency pairs, with limited economic data on the calendar and no ground-breaking announcements emerging from the final day of the ECB-led policy forum, either. Arguably the Pound may have been helped from sliding any further off a last-gasp victory by Theresa May who managed to eventually steer a key Brexit amendment through the House of Commons by a narrow margin - and then have it accepted by the upper house. The point to watch here is that any leadership challenge could run the risk of a new government needing to be formed and given the current fragile arrangement we have, the accompanying uncertainty would do little to favour Sterling.

The big event for the day ahead will be the Monetary Policy Committee’s verdict over interest rates at the Bank of England, due at 12pm BST. There’s no expectation of a rate hike, not least because they are typically coordinated with the release of the quarterly inflation report. The next of these is published in August, but it’s going to be any change in the underlying tone that the market will be watching for. There’s growing disquiet from some quarters that the Bank needs to make a move on rates and that opportunities to tighten policy have already been missed in recent months. Anything that increases the prospect of an August rate hike has the potential to deliver gains for the Pound - at least in the short term.

Across the Atlantic and the housing sector will remain in focus. We saw Existing Home Sales post a surprise contraction yesterday, so today’s House Price Index at 2pm BST will also be under scrutiny. A 0.5% increase is expected on the monthly figure, but if prices are seen to be falling too, then questions might start to be asked as to whether the Fed’s stance over policy tightening is proving a little too aggressive for the market to bear. That however is likely to end up being little more than a footnote when compared to the upside benefits for the US dollar of any trade war, at least in the medium term.

There’s a Eurozone Consumer Confidence reading out at 3pm BST today, which will provide a forward-looking insight at to the health of the economy on the Continent. Although we have moved beyond the immediate uncertainty of new governments in Italy and Spain, expectations are that we could see a decline in sentiment, with a reading of zero being forecast. Anything below this level indicates a negative outlook and could drag the Euro lower as a result - it’s not the sort of backdrop which will encourage the ECB to stick to that December end date for QE.

Further losses yesterday again reflect the divergent growth prospects of the UK and the US, as well as potential inflationary pressures across the Atlantic. News from the BoE could be pivotal in dictating short term fortunes for the pair, but even if we do see upside today, sustaining this could prove difficult.

The Euro remains on the back foot and the prospect of an undershoot in today’s consumer confidence reading could weigh further. Mario Draghi has already said this week that he’s willing to slow the rate of QE tapering - something that would add further downside pressures to the Euro.

The pair moved broadly sideways during yesterday’s session although any failure for the Bank of England to lean towards an August rate hike in today’s statement could readily see some further weakness emerging here.