GBP - British Pound
There were no surprises in the rate decision made by the Bank of England yesterday, as they voted 0-0-9 in favour of keeping interest rates unchanged at 0.75%. The decision was a safe option, in an attempt to stabilise the UK economy in the face of a global slowdown and the imminent, unresolved matter of Brexit that currently stares the nation right between the eyes. Recent trends suggest that market movements are currently being dictated by the likelihood of a ‘No Deal’ Brexit and investors have their blinkers on when analysing UK technical data and are fixated on Brexit headlines. Despite weak business investment, the UK has seen strong consumer consumption and wage growth data since May and therefore the 7% drop in GBP/USD seems unwarranted. The British economy seems healthier than the strength of its currency suggests and sterling is currently anchored on the downside by the fear of the unknown.
The MPC have consistently held the view that a ‘No Deal’ Brexit is not on the cards and it is evident that they are sticking to their guns and assume a smooth Brexit scenario. As for their views for the future? The UK has gradual rate hikes, limited tightening and a period of weaker short-term growth to look forward to, rolling into the next few quarters. According to Carney, there is a 33% chance that the UK feels the force of a minor recession in January as the weight of Brexit and the US-China trade war spill over onto the UK.
Trump went about his actions in true Trump fashion last night as he broke a truce in the US-China trade war. The US President announced his plan to implement an additional 10% tariff on $300 billion worth of Chinese imports from September 1st onwards. He claimed that he will “keep taxing the hell out of them” until a stable deal is agreed. The tariff was implemented after U.S negotiators returned from their trade talks with the US empty handed, as China decided against purchasing a large quantity of US agricultural goods, despite promises. Risk assets didn’t like the fact that Trump upped the ante on China and both the stock market and equity dropped on the announcement.
On another trade front, we may see a drop in EUR later as Trump is due to announce news on EU trade, later today. It is expected that at 13:45ET, Trump will open up EU markets to more U.S beef exports, will consequences if an agreement is not met.
Eyes turn to US employment data and Italian Industrial Production later today.