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Hard Brexit remains on the table

GBP

Sterling initially gained support from a cross-party attempt to pass legislation that would prevent a ‘no-deal’ Brexit and Tory leadership favourite Boris Johnson commented that he was not aiming for a ‘no-deal’ outcome which also helped. Recent Bank of England (BoE) comments on the interest rate projections also helped underpin the Pound, allowing a peak above 1.2750 on the Dollar and the Euro rose as high 1.1267. It wasn’t to last however when the ‘no-deal’ Brexit motion was rejected in the House of Commons the Pound wilted. Alongside a Dollar recovery, the Pound dipped back below 1.2700.

RICS housing data recovered to -10 from -23 and the strongest reading since October which offered some reassurance over house price trends. Politics will remain key as the first Conservative Party leadership election occurs today. Sterling was little changed at market open, the Euro around 1.1235 and the Dollar at 1.2780.

USD

The US NFIB small-business confidence index strengthened to 105.0 from 103.5 previously and close to record highs. Producer prices rose 0.1% for May with the year-on-year increase slightly below consensus forecasts at 1.8% from 2.2% previously while underlying prices rose 2.3% over the year. The data had little in the way of immediate consequences for monetary policy although Wednesday’s CPI release may have a more substantial impact.

President Trump again called the Euro and other currencies devalued against the US dollar which put the US at a big disadvantage. Markets were wary over the rhetoric, especially given the risk that comments would trigger sharp asset-price moves. The IBD consumer confidence index registered a significant decline to 53.2 for June from 58.6 previously.

EUR

German bond yields declined further to a record low of -0.24% at the latest auction which reinforced the lack of Euro support from the bond market. Long-term Euro inflation expectations declined further add pressure for further monetary action from the ECB.

The Euro has little changed ahead of the New York open with the Dollar unable to make significant headway, but the Euro fell away after failing to test the 1.1350 area against the Dollar. President Trump warned Germany over its dependence on Russian gas adding to unease over the risk of increased US-EU trade tensions. The Euro dipped below 1.1300 and opens this morning little changed ahead of Euro Industrial Production figures.

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