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Pound slips ahead of leadership debate

GBP - British Pound

GBP/USD has slipped under 1.25 again this morning as Brexit woes and some dollar buying push cable lower. A fragile pound is being undermined further by recent dovish comments from Bank of England Governor, Mark Carney and data tomorrow which is likely to indicate Brexit uncertainty has pushed growth into negative territory for Q2. Monthly growth data for April-May is expected to show a rebound from -0.4% to 0.3% compared to the previous month's reading however it seems at best a flat reading is due when official quarterly data is produced in early August. The pound's effort isn't being helped by reports this morning that the government's own Business and Trade Union Alternative Arrangements Advisory Group has raised concerns over the Irish border should a no-deal Brexit be defaulted to. Irish Finance Minister, Paschal Donohoe has also commented that a disorderly Brexit poses a significant risk to both countries.

Amid all this doom and gloom we will get our first head to head TV debate from the two Tory leadership candidates, Jeremy Hunt and Boris Johnson this evening at 8pm on ITV. The hour long debate will likely be Brexit-heavy in content and we could see some volatility in its value towards the end of the US session depending on the tone emanating from the two candidates, especially Johnson. UK bookies have BoJo huge odds on favourite for the job at somewhere between 1/20 and 1/50 so if he reiterates and emphasises his openness to drop out of the bloc without a deal then we could see the pound take another leg lower. GBP/USD sits around 1.2485 with GBP/EUR at 1.1135, close to the 1.1111 level that inverted shows EUR/GBP at .90 in forex market convention.

Key Movers

Outside of the Brexit bubble the week is likely to be dominated with news re: the greenback with Federal Reserve Chairman, Jerome Powell due to start two days of testimony before the House Financial Services Committee in Washington. Ahead of that he is due to give a Q and A session at an event at the Boston Fed however he may keep his cards close to his chest ahead of Wednesday and Thursday's grilling in DC. Sandwiched between the two days of discussion the minutes from the last interest rate decision from the Federal Open Market Committee are due tomorrow evening so come Thursday night we should have a clearer picture on the future course of interest rate moves from the Fed. Markets have all but priced in a cut at the end of the month however the timing of the next adjustment is uncertain with some predicting a "one and done" move to give the economy a little wriggle room and others expecting another two cuts by year end.

Overnight the latest NAB Business Confidence survey from Australia dropped from 7 to 2 with the closely followed report highlighting persistently low inflation and China trade tensions continuing to weigh on the local economy. The RBA is likely to cut rates again by year end and unless there is a quick resolution to the US/China trade war with further reductions possible in 2020. AUD/USD sits at .6945.

Its a quiet week from the eurozone however speculation over September moves from the European Central Bank continue to build. It seems likely some sort of loosening in monetary policy will be announced at the end of the summer however the manifestation of this still some cause for debate. Will the ECB hold put til later in the year, cut rates or announce another round of full blown QE to stimulate the EZ? Only time will tell. EUR/USD trades at 1.1210 with USD/JPY at 108.80

Expected Ranges

GBP/USD: 1.24 - 1.2540 ▼

GBP/EUR: 1.1050 - 1.1205 ▼

GBP/AUD: 1.79 - 1.8060 ▲

GBP/NZD: 1.8790 - 1.8940 ▲

GBP/CAD: 1.6310 - 1.6850 ▼