GBP - British Pound
In the past 5 days, the pound has dropped 3.4%, from 1.2516 to 1.2100 against the US Dollar. Sterling’s journey is now dependent on 2 key factors:
1. Brexit negotiations
2. BoE projections/decisions.
The BoE meet later today in order to announce their policy rate for the upcoming period. Much like the FOMC yesterday, investors are assuming with extreme confidence that the BoE will leave rates unchanged for the upcoming period and the MPC will vote 9-0 in favour of such a decision. The BoE find themselves in a very difficult spot, as without a clear, definitive answer on the future of Brexit negotiations, the MPC must be more cautious in their decision making. The decision is made harder by the mixed bag of data we have seen released for the UK over the past few months. The chances are slim, but if the BoE discuss the notion of a rate hike later in the year, or at least a bullish stance on the next 6-months for the UK economy, expect a serious spike in the pound. If not, expect a fairly muted response from the pound, and for it to continue on a downward journey against its’ peers.
Johnson and his cabinet are once again sparking the ‘No Deal’ Brexit fire as they have set aside an extra £2.1bn for Brexit preparations. They are stockpiling medicines, employing an additional 500 border officials and funding a public awareness campaign. The situation heats up as Johnson finds himself with only 20 more parliamentary working days to either agree a deal or bite the bullet and leave the EU before the infamous Oct 31st deadline.
The BoE announcement is at 12 BST today.
The FOMC announced their decision last night to cut US interest rates by 0.25% (25bps). The cut was widely considered a certain by investors and the 25bps cut was already priced into the market before the announcement. In his statement following the announcement, Fed Chairman Jerome Powell left open the possibility of further moves but insisted he didn’t see last night’s cut as the start of an extended easing cycle.
USD strengthened slightly against its major peers and pushed GBP/USD down to 1.21 and EUR/USD to 2-year lows. The cut seems sensible from the Fed as a precautionary measure against slowdown in global growth and fear of the unknown in relation to the US-China trade war. Trump has called for a deeper cut in rates, as he wishes to devalue the USD in order for encourage the purchasing of US exports.
In other news, the Eurozone faces further woes as another batch of negative technical data was released this morning. The headline manufacturing index has signalled a contraction in the Eurozone for 6-months in a row. The reading of 46.5 marks the sharpest deterioration in operation conditions since December 2012, with Germany once again a source of weakness for the bloc.