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Markets eye second Tory leadership vote

GBP - British Pound

Sterilng's woes continue unabated as concerns continue about the UK leaving the EU without a transition deal in place. Today sees the second round of voting on a new Conservative party leader/Prime Minister with Boris Johnson remaining odds on favourite to get the top job at 1/7. The bookies have dramatically shorted the odds on Rory Stewart, the current Secretary of State for International Development over the past week from around 28/1 to 9/1 as several MPs have publicly backed him for the top job. Stewart favours an orderly exit from the EU which is the majority of MPs preferred route as they know a no-deal Brexit could still be blocked by parliament leading to another extension of Article 50. GBP/USD came close to breaking below 1.25 for the first time since the 2nd January overnight as markets shun the pound in the face of no deal being struck by the Brexit deadline at the end of October. Johnson has stated he's also in favour of a deal being struck with the EU however he is prepared to depart without a deal and that is what is weighing on the pound. This afternoon will see the list of contenders reduced from six to four or five and expect some sterling volatility should Boris be pegged back in the voting.

Away from politics UK data kicks off tomorrow with UK CPI which is expected to drift back to target from 2.1% to 2.0% however don't expect much of a move in the quid should it fall short/exceed expectations as the pound remains a prisoner of politics. GBP/USD currently trades around 1.2535 and GBP/EUR is down to 1.1155, its lowest level since mid-Jan.

Key Movers

Outside the Brexit-bubble, the main event in the wider world for fx markets will be tomorrow nights US interest rate decision from the Federal Open Market Committee. No change in policy is expected however with a recently inverted yield curve and a run of poor domestic data analysts are expecting Federal Reserve Chairman, Jay Powell to open the door to interest rate cuts in the second half of the year in an effort to prevent a potential recession that some foresee in 2020. Yesterday's latest print to miss target was a woeful Empire State Manufacturing Index survey which came out at -8.6, its worst reading since May 2016 when estimates were for 12.1. The survey showed growth reversing, employment shrinking and future optimism declining in the face of global trade tensions.

European Central Bank chief, Mario Draghi spoke in Portugal yesterday however monetary policy wasnt discussed so there was little impact on the shared currency. He talks again today and tomorrow. This morning sees the latest German ZEW Economic Sentiment Survey released with a drop to -5.7 eyed. EUR/USD trades around 1.1235

The Aussie slipped overnight as the minutes from the latest Reserve Bank of Australia interest rate decision were published with board members indicating that loosening of policy was on the horizon sending AUD/USD towards .68

Expected Ranges

GBP/USD: 1.25 - 1.2630 ▼

GBP/EUR: 1.1140 - 1.1255 ▼

GBP/AUD: 1.8270 - 1.84 ▲

GBP/NZD: 1.9240 - 1.9375 ▼

GBP/CAD: 1.6770 - 1.6910 ▼