31st July – New Lows for Pound
The pound remained on the back foot yesterday, briefly touching new lows against many of its peers as GBP exchange rates continued to be hounded by no-deal Brexit fears.
Sterling appears to have stabilised this morning however, with GBP/EUR flat €1.0913, GBP/USD muted at $1.21175, and GBP/CAD and GBP/AUD both holding steady at C$1.5998 and AU$1.7666 respectively. Only GBP/NZD has shown any notable movement so far, with the pairing rising to NZ$1.8435.
The US dollar will be centre stage today as markets brace for what is widely expected to be the Federal Reserve’s first interest rate cut in a decade.
What’s been happening?
Following on from Monday’s sell-off, the pound extended its losses even further yesterday as the rising prospect of a no-deal Brexit continued to spook investors.
Boris Johnson is currently refusing to meet with EU officials unless the Irish backstop is dropped. At the same time, reports emerged that EU leaders are ‘ready to call Boris Johnson’s bluff’ and are preparing for a no-deal Brexit summit in mid-October.
Heaping additional pressure on the GBP/EUR exchange rate on Tuesday was the publication of Germany’s latest CPI figures, with the euro being bolstered by a surprise acceleration in headline inflation in July.
Meanwhile, the US dollar found its gains trimmed somewhat yesterday after the US PCE price index came in below expectations in June.
What’s coming up?
The Federal Reserve is in the spotlight today as the bank prepares to deliver its first rate cut in a decade.
With the move having already been priced in by markets, any subsequent movement in the US dollar is likely to be driven more by the Fed’s forward guidance, with a signal of a ‘one and done’ rate cut likely to boost USD exchange rates.
Meanwhile, there is a slew of Eurozone economic data for EUR investors to sink their teeth into today, including the bloc’s latest GDP figures. A widely expected slowdown in economic growth in the second quarter is likely to dent the appeal of the euro.
Finally, we expect the pound to remain vulnerable to further losses today as the UK government maintains its hard-line stance on Brexit.
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