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Pound dragged lower by Brexit worries

GBP - British Pound

Sterling has started the week on the back foot as the odds of Boris Johnson becoming next PM continue to shorten. Reports in newspapers over the weekend suggested that opposing candidates may drop out of the race against Johnson in an effort to stop more damage being done to the already divided party however this has been denied and we see another series of votes this week which will whittle down the field to two candidates by Thursday afternoon. Johnson declined to take part in televised debate between his opponents on Channel 4 last night possibly thinking it better not to appear and let his opponents scrap it out without him. It appears the tactic has worked, in the bookmakers eyes anyway, with the odds on him becoming next leader now at 1/7 from 1/5 seen at the end of last week. Johnson is determined to take the UK out of the EU at the end of October with or without a deal and the fear of a no-deal Brexit is hurting the pound. GBP/USD is back under 1.26 as a result and looks likely to remain pressured for the foreseeable future.

Data-wise this week we have UK inflation numbers on Wednesday with a small slip to 2% eyed. Thursday sees UK Retail Sales numbers and the Bank of England interest rate decision. Mark Carney speaks at the annual Mansion House dinner on Thursday evening with warnings over a disorderly Brexit likely to be aired.

Key Movers

The dollar remains well bid at the start of this week having benefited from solid retail sales numbers released on Friday. The core number hit target at 0.5% m/m growth and although the overall reading missed target at 0.5% instead of 0.7% m/m both the previous months readings were revised higher which was seen as a net-gain for the greenback. EUR/USD is down to around 1.1220 with USD/JPY a touch higher at 108.60. Equity around the world are mixed as tensions ease a little over the attacks on two oil tankers in the Gulf of Oman last week. The US has accused Iran of the attack with a video purporting to show Iranian Revolutionary Guards in a boat removing an unexploded mine from the side of one of the hit vessels. Ongoing trade tensions and the protests in Hong Kong mean risk appetite in the markets is limited. To highlight this point AUD/USD is now under .69 with NZD/USD hovering around .65.

This week's main event is Wednesday evening's interest rate decision from the Federal Reserve. No change in policy is expected however we may see Fed Chairman, Jerome Powell telegraph a move lower in the second half of the year, maybe as soon as July.

European Central Bank chief, Mario Draghi is due to speak, today, tomorrow and Wednesday with the monthly eurozone PMIs due on Friday. Wednesday night sees second quarter growth numbers from New Zealand.

Expected Ranges

GBP/USD: 1.25 - 1.2675 ▼

GBP/EUR: 1.1175 - 1.1310 ▼

GBP/AUD: 1.8215 - 1.8350 ▼

GBP/NZD: 1.9260 - 1.9410 ▼

GBP/CAD: 1.6810 - 1.6970 ▼