UK economic data shows some promise - but political risk weighs

Today’s macro highlights:

  • USD - Producer Price Index (June)
  • USD - Wholesale inventories (May)

UK economic data shows some promise - but political risk weighs

Sterling made little progress through yesterday’s session despite some positive economic news. The ongoing state of flux in government - there were two further low-level resignations yesterday - and the latent concern that a leadership challenge may yet appear are serving to keep a lid on any upside. In terms of the data, the newly published monthly GDP reading showed healthy growth, but industrial production remained in negative territory and manufacturing production was notably behind expectations, too. Combine this with the overhanging political uncertainty and it could be seen as admirable that the Pound is holding up so well.  

Economic data in the hours ahead remains relatively limited, with the focus likely to be on the US for today. 1.30pm BST sees the release of the latest Producer Price Index data and the market will be watching to see that there’s no dip into negative territory here. The Federal Reserve is edging towards a position where the idea of regular rate hikes may need to be wound in so any further indications that we won’t see two more moves by the FOMC this year will have the potential to see a degree of dollar selling.

Keeping with the US and at 3pm BST, we have the release of wholesale inventory data. A modest month-on-month decline is expected and that’s seen as being good for the economy as it indicates fewer goods are being stockpiled. Admittedly this is a relatively low level economic reading, but with a quiet day ahead it could yet provide some direction in the short term.

We also have a handful of central bankers speaking today, which could well provide some fresh direction. Mark Carney is speaking at a conference in the US regarding the global financial crisis, so any hints as to whether that August rate hike is looking more likely could provide some short term support for Sterling.

Mario Draghi is also due to be speaking at a statistics conference in Frankfurt. Monetary policy isn’t at the core of this subject but there’s certainly the scope to make inferences over what happens next. The question of unwinding the ECB’s bond buying programme remains front of mind so any clues here could again drive the common currency. 

GBP/USD
The pair traded in a tight range yesterday, with the market looking for some fresh signals on the political agenda. If we see a leadership challenge being mooted then the risk will be very much on the downside, even if the prospect of a rate hike next month is on the table. 

EUR/USD
Disappointing ZEW survey data yesterday pushed the pair lower through the morning session, but the Euro managed to post a recovery and finish the day little changed. The common currency is certainly finding meaningful support right now - any further signs of a slow down across the Atlantic may play to its favour. 

GBP/EUR
The pair was constrained to a 0.15 cent range during yesterday’s session, adding to the idea that the market is waiting to see what happens next before making a move. Further conviction over the idea that the Bank of England will hike rates next month could provide short term support for the Pound, but the political uncertainty has the potential to keep this short lived.