The UK currency drifted weaker ahead yesterday and dipped lower again in US trading with a slide to lows near 1.2550 against the Dollar. The Euro also pushed to fresh lows around 1.1160.
Sterling was again hampered by political and economic uncertainty yesterday. There was no evidence of a major change in the Conservative Party leadership race with Boris Johnson still seen as in a very strong position ahead of today’s second round of voting. Given his determination to leave the EU on October 31st, there were further concerns over the risk of a no-deal outcome. There were also reports that Chancellor Hammond could resign over opposition to Prime Minister May’s spending plans.
Political factors will remain important with the second round of Conservative Party voting today while global risk conditions will also be an important element with concerns over the international economy liable to undermine the UK currency, especially given the substantial current account surplus.
It's hard to believe it's already the Federal Open Market Committee (FOMC) meeting time again, but the currency market is preparing for the latest news out of the Federal Reserve (Fed). Fed Chairman Jerome Powell is expected to set the stage for an interest rate cut, as Trump tariffs and stock markets are dark clouds hanging over the US economy.
The New York Empire manufacturing index declined sharply to -8.6 for June from 17.8 the previous month. This was well below consensus forecasts of 12.0 and a record monthly decline which took the index to the lowest level for more than two years. New and unfilled orders both declined sharply while there was a decline in employment for the first time in two years with a slower pace of increases in prices received. There was a dip in the six-month outlook, although sentiment held firm. The NAHB housing index declined to 64 from 66 previously and below consensus forecasts.
Weaker than expected headline data triggered fresh growth doubts and expectations of a dovish Federal Reserve policy statement.
After finding support close to 1.1200, the Euro rallied past 1.1240, but was unable to sustain the gains and slowly found itself trading back towards 1.1215 as the US currency regained ground during the American trading session.
Draghi will again be speaking at the annual symposium in Sintra, Portugal today shortly before the German ZEW survey data is released.
The outcome of the German ZEW survey could possibly highlight more pessimistic undertones from central bank policymakers if the numbers fall in line with the fundamental consensus. With the previous data release coming out at -2.1, the expectations are for a release of -5.6, which is significantly lower.