Daily Brief

Daily Brief

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General election looms over sterling

Wooden spoon collection grows

A general election was probably not the greatest of investors' worries about sterling on Friday night. It was pencilled in yesterday morning and double-underlined in red when the Prime Minister spoke of "an election, which I don't want". 

His statement was reminiscent of an earlier desire to avoid suspending Parliament. Investors took it as a sign that Johnson will call a general election if he loses the battle over no-deal in the Commons this week. They evidently worry about the prospect of a Corbyn-led government at least as much as they fret about a no-deal Brexit. Sterling was Monday's biggest loser by a street, falling an average of 0.8% - one Swiss cent - against the other major currencies. It lost one and a quarter US cents, three fifths of a euro cent and, yes, one Swiss cent.

The pound's position was not improved by the two UK economic statistics. Markit's manufacturing purchasing managers' index touched a seven-year low at 47.4 with business confidence at its lowest level since it began to be tracked in 2012. The BRC's like-for-like retail sales measure fell to -0.5%. Both numbers were worse than expected.

PMIs and RBA

Manufacturing sector purchasing managers' index readings from Europe were mostly a little higher on the month. That is not to say they were good: five of the eight submissions were below the boom/bust dividing line at 50. The Reserve Bank of Australia did as expected, keeping its Cash Rate benchmark at 1.0% for a third month.

The headline of the manufacturing PMI statement was that the "Eurozone manufacturing slump continues in August", with orders falling at the fastest pace in six years. Germany was once against the weakest, at 43.5, while Greece topped the list at 54.9.  

In Sydney, the Reserve Bank of Australia "decided to leave the cash rate unchanged at 1.00%". It had been widely expected but the Aussie still reacted positively, strengthening by more than a cent against sterling. It did so despite the RBA statement warning that it will "ease monetary policy further if needed". Perhaps investors had been expecting an even more dovish tone.

Back to Brexit

When they return to work today, MPs will be asked to consider an opposition move to prevent Britain leaving the EU with no deal. There is unlikely to be a result today but the media pointy-heads will deliver a barrage of punditry and cogitation to maintain the suspense.

Tuesday's ecostat agenda began with Australian retail sales, which dipped by a disappointing 0.1% in July. Inflation in Switzerland remained at 0.3% in August, with prices flat on the month. This morning's UK construction PMI is forecast to be half a point higher on the month at 45.9. The only other European data are for euro zone producer prices.

After lunch the belated North American manufacturing PMIs will appear. Of the two US readings, Markit's is expected to be unchanged, a millimetre below the 50 breakeven line, and the more closely-watch ISM is supposed to be a quarter of a point lower at 51.0. Australian second quarter GDP comes out tonight.

GBP: Election threat

GBP: Election threat

EUR: Greece delivers best manufacturing PMI

EUR: Greece delivers best manufacturing PMI

AUD: Cash rate unchanged at 1.0%

AUD: Cash rate unchanged at 1.0%

CHF: Unchanged on average

CHF: Unchanged on average

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