Loose lips sink the pound

The pound had a tough day yesterday; it fell below $1.29 for the first time in 11 months due to continuing worries Britain will leave the EU without a trade deal. Sterling also hit a nine-month low against the euro, and was down against the yen and Swiss franc. While nothing concrete can be found behind the fears, it seems that the statements on the likelihood of a ‘no deal’ Brexit from both Trade Secretary Liam Fox and Bank of England governor Mark Carney created the pressure. Unfortunately, there is little hope of counter-statements with parliament on their summer break.

This may mean more rough waters ahead, although there may be some hope found in the month on month Manufacturing and Industrial production statistics due to be released at the end of the week.

Euro keeps its head down

British holidaymakers heading to Europe may be losing out on the weakness of the pound, but it’s not due to any inherent strength in the euro. Although there have been fluctuations, the central currency has failed to make any gains on the US dollar. 

At the moment, the euro may not be making gains but it is holding steady. This is no mean feat given the uncertainty arising in Italy after the European Commission’s fraught negotiations with Prime Minister Giuseppe Conte over the budget. The outcome of those negotiations may smooth over concerns, but nothing seems certain in the current political landscape.

US inflation gathers pace 

The US dollar received a dent after the trade tension between the US and China continued to escalate. The bare numbers behind those tensions were announced yesterday. The US government released a list of $16 billion worth of Chinese goods due to be slapped with higher tariffs. In response, the Chinese Ministry of Commerce announced a 25% tariff on $16 billion worth of US goods yesterday. That list included auto and crude oil and this proved bad news for the greenback.

The response appears to be little more than a minor setback for the US dollar however. Later this week, producer price inflation and consumer price inflation figures are set to be released, with headline CPI expected to rise to 3%. The continued acceleration of inflation in America will mean the market is likely to remain bullish about the dollar.

Swings and roundabouts around the world

The picture elsewhere is mixed. The Reserve Bank of New Zealand decision was more dovish than many expected and the currency struggled as a result. In contrast, their neighbours down under had a better day; the Australian dollar was the second strongest on the day thanks in part to a strong rebound in Chinese stocks and the close relationship between the two nations. 

Another currency that made a recovery was the Canadian dollar. The market appears to be looking beyond the current diplomatic tensions with Saudi Arabia, or perhaps looking the other way in the hope it will all blow over.