Traders dump Sterling after Trump threatens US-UK trade deal
The Pound slumped to its lowest level, in the last ten days, against the US Dollar this morning after Donald Trump said that the UK would ‘probably not’ get a trade deal with the US should Theresa May follow through with her Brexit plan.
This is another major blow to the Prime Minister, who already saw two of her key cabinet members resign in protest of her Brexit plan. Thursday’s release of the UK government’s Brexit blueprint provided a small, temporary bounce for the Pound yesterday. The long awaited White Paper, which outlines how the government sees the country’s future relationship with the EU post-Brexit, was seen as favoring a so-called ‘soft Brexit’, in which trade ties with the bloc remain close. The paper shifted away from many of the hard Brexit signals, while fleshing out the Chequers agreement that led to the resignations of Boris Johnson and David Davis last week. Yesterday’s bounce in Sterling was, however, relatively mild, given that much of what was announced was already priced in to the value of the currency. Bank of England monetary policy member, Cunliffe, will be speaking in the UK around midday today. In the absence of any comments on bank policy, the Pound is likely to continue being driven by developments on the Brexit front.
US inflation rises to highest level since 2012
The US Dollar rally paused on Thursday, consolidating gains after a week long run of advances on the notion that the US could stand to benefit from a trade war. The much anticipated US inflation release proved to be a non-event, coming in as expected at 2.9% year-on-year in June, its highest level since 2012. This marked the fifth straight monthly increase in the measure, and ramps up bets that the Federal Reserve will raise interest rates on another two occasions in 2018. With US inflation now almost one percent above the bank’s target, and with the US labour market continuing to create jobs at a robust pace, the Fed is likely to raise rates again in September and then again at its December meeting, in our view. Macroeconomic news is relatively light on the ground in the US this afternoon and investors will instead have one eye on a couple of speeches from Federal Reserve member, Bostic.
ECB accounts reiterate rates to remain low in Eurozone
As expected, yesterday’s ECB meeting accounts added little meaningful news, and the Euro was barely changed following its release. The accounts reiterated that interest rates in the bloc would likely stay at current levels for an extended period of time. Policymakers also cautioned that the recent slowdown likely extended into the second quarter of the year in the Eurozone, although there was confidence inflation would return to target over time. As we mentioned yesterday, we think that any meaningful announcements from the central bank will be few and far between in the coming months.