Currency Note

Sterling low ahead of important week

By Erin Harding July 22nd, 2019

Pound low

We have a big week ahead, as voting closes today to make way for a new Prime Minister. The winning candidate will be announced tomorrow and will take office on Wednesday. It’s safe to say that he’ll have a multitude of issues to tackle imminently, including rising tensions in the Gulf.

Both the euro and dollar look ahead to economic data releases this week, with a flurry of Eurozone PMI’s on Thursday and US GDP on Friday. The ECB will also make their rate decision on Thursday. While no rate cut is expected, focus will turn to ECB policy plans for the next few months.

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GBP: A weak morning for sterling as tensions in the Gulf rise

The pound is weak against the euro and the dollar this morning. Brexit worries and geopolitical tensions are still weighing on sterling. On Friday, Iran seized a UK tanker. Theresa May is chairing a security meeting this morning due to worries over the relationship between the two countries.

Voting will close today for Conservative Party members ahead of the announcement of our new Prime Minister, which will take place tomorrow. Theresa May is due to hand her resignation in on Wednesday, and her successor will then take office. It is still widely expected to be Boris Johnson. Philip Hammond has said that if Johnson does become Prime Minister, he will resign as Chancellor.

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EUR: Euro awaits ECB rate decision

The euro is strong against the pound this morning and weaker against the dollar. The markets are looking ahead to Consumer Confidence data tomorrow, a series of PMI data on Wednesday and the ECB interest rate decision on Thursday, which is likely to have an effect on the euro.

Despite recent dovish rhetoric, it is thought that the ECB will hold off from cutting rates and set the stage for a possible September rate cut.

In a new monthly report, Germany’s finance ministry has warned that the factory sector faces tough challenges. It says that manufacturers are suffering due to a slowing global economy, a reminder that the US-China trade war is taking its toll.

USD: Dollar weak ahead of GDP data

The dollar is weak against both the pound and the euro this morning. This is possibly due to increasing expectations that the Federal Reserve will cut interest rates next week, although the question remains as to how much they will be cut by.

The markets are also looking ahead to economic data releases this week, including durable goods orders and goods trade balance on Thursday, and US GDP on Friday. This data, especially GDP, could sway the outcome of the rate cut decision next week.

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