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10th week of consecutive misery for the Pound

GBP – Pound losses continue

The Pound returned to 2019 lows last week toying closely with the 1.11 level at interbank, previously seen briefly at the beginning of the year. Despite a welcomed pitch upwards towards the end of the week, following an unexpectedly positive GDP report, it seems that Sterling will remain stunned by the uncertainty brought on by the pending Conservative leadership race.

The UK economy managed to grow 0.2% in the three months of March to May, whilst growing an additional 0.3% in the month of May, beating expectations on both counts. Unfortunately, notwithstanding the positive readings, we saw little encouraging reverberation in the markets as the overwhelming sentiment on the Pound remained negative.

The Pound starts this week at the bottom of the G10 mix, as analysts forecast further woe for the Pound through what will be a busier week on the data front. UK Labour data will kick off precessions on Tuesday at 0930, followed up by comments from the BOE’s Mark Carney at 1300 from Paris. Following this we will have the ever-important inflation reading out at 0930 on Wednesday and the Bank of England’s credit/liabilities survey on Thursday.

Sterling today will be kicking off its 10th consecutive week of losses against both the Dollar and the Euro. Headlines at this stage suggest that should the outcome of the Conservative leadership race prompt adverse Brexit headlines we could see a further drop of up to 4%.

EUR – Sluggish markets see slowing German growth 

Last week saw limited movement for the Euro. EUR/USD mostly traded within the $1.12- 1.13 band, while EUR/GBP was exchanging in the upper half of 89-90p.

The Eurozone schedule is barren this week. Tuesday will see the release of German ZEW Economic Sentiment, the current forecast is for another negative reading of -22.1, this is following the sharp decrease in June of -21.1. The sharp drop in the ZEW Indicator of Economic Sentiment coincides with an increased uncertainty regarding the future development of the global economy and substantially worsened figures for the German economy at the beginning of the second quarter. 

The only other data of note due out is the final reading of June HICP on Wednesday. However, no major revisions are expected. As the eurozone is quiet, in contrast to the busy week ahead for the UK and the US, it may mean that any movement for the Euro is largely out of its control and impacted by events elsewhere.

USD – Interest rate cuts weigh on the Dollar 

Against a basket of other currencies, the Dollar fell 0.1% to 96.94 last week, suffering its biggest weekly drop in three weeks. 

Stronger-than-expected US Inflation data failed to shake convictions that the Federal Reserve will start cutting interest rates at a policy meeting later this month. The core US Consumer Price Index, excluding food and energy, rose 0.3% in June, the largest increase since January 2018. This signalling a dovish stance when inflation is rising, which is contrary to usual policy and suggests there are political pressures weighing on the Fed.

It’s a fairly quiet week on the economic front for USD, with the main talking points likely to be Retail Sales figures on Tuesday. These are expected to be down at 0.1% from the previous month’s figure of 0.5%.

Fed chairman Jerome Powell is speaking at a Bank of France dinner in Paris on the same day. Any comments on the US economy and monetary policy will be closely scrutinised no doubt. 

AUD and NZD – Chinese growth comes to the aid

Chinese quarter on quarter GDP figures released on Monday morning produced a good reading and resulted in the AUD gaining strength against the Pound early on. The figure, which is a barometer of China’s economic health, came out at 1.6%, above the previous reading of 1.4%. The year on year figure however, did remain on consensus at 6.2%. Data from China has a significant impact on the AUD as Australia and China have large trade exposures. Australian interest rates are currently at 1% following two recent cuts so any more hints towards further interest rate movement, would likely impact the AUD.

Later this evening, we have New Zealand’s Consumer Price Index figure. GBPNZD will mainly be driven by UK events and the strength or weakness of GBP. Any unexpected data from China could also impact the NZD price.

CAD – Loonie strength continues

The Canadian Dollar endured a mixed week of data. However, it was able to maintain its good run of form; trading higher against almost half of the G10 basket of currencies. Thursday’s New Housing Price Index dropped lower than expected for May. However, this was overshadowed by the ever-increasing chance of an interest rate cut in the US which lends itself to a stronger Loonie.

One of the largest banks in the world, MUFG, last week stated that the Canadian Dollar is likely to continue this run of good form “for a while yet”. The prospect of an interest rate cut is driving investment away from the USD Dollar and into alternative Canadian based assets.

The week ahead looks to focus on Wednesday’s Inflation data, with a potential rise in Consumer Price Index numbers looking to provide the Canadian Dollar with another bullish period.