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Sterling to take centre spot at world cup semi?

By Jake Trask

After Tory political drama hit sterling hard on Monday the pound found its feet yesterday and appears to have stabilised after the resignations of David Davis and Boris Johnson from Prime Minister, Theresa Mays cabinet. The departure of the Brexit Secretary (Davis) and in particular the Foreign Secretary (Johnson) had enveloped the pound in uncertainty resulting in GBP/USD falling from 1.3350 to 1.32 before finding support at the big number. Data-wise yesterday we saw the first monthly print of UK GDP which showed an uptick of 0.3% from April to May. Going forward the Office for National Statistics will be producing monthly numbers (like Canada does already) as well as the usual quarterly figures. At the same time the Mays Manufacturing Production reading missed target showing only 0.4% expansion when 1% had been expected. The net-result of the two data-sets was pound negative and saw cable fall away from the 1.33 handle it has been threatening to punch back through. Bank of England Governor, Mark Carney is due to give a speech later today in Boston however the biggest mover for sterling could be England’s World cup semi-final against Croatia this evening. Mark Carney has already highlighted the boost to the UK economy a world cup win would have and should England progress to the final then a pound-rally could be on the cards as consumer spending sky-rockets in preparation for Sundays match. Obviously there is a big obstacle in the way tonight, Croatia are blessed with some world class players in Luka Modric and Ivan Rakitic however the bookies have England as slight favourites for the match. Come on England!

Another batch of Chinese goods have been announced as potential targets for tariffs by America overnight which has sent equity markets around the world lower. The list of 6031 goods proposed to be hit by a 10% tax varies from live ornamental freshwater fish to aromatic salts to bicycle tyre inner tubes. The implementation of this tax is due at the end of August and investors have fled to the usual safe havens such as the Japanese yen as a result. Markets focus will now be on what retaliatory measures China takes in response. Donald Trump has landed in Europe today and is already making headlines as he meets with Nato officials in Brussels. Trump has previously taken issue with other members of Nato for not increasing defence spending towards meeting a 2% of GDP target by 2024 and is taking aim at them currently on the matter. He is due to arrive in London tomorrow however given the world cup fever England is currently experiencing it hasn’t made as many headlines as would normally be expected. Todays only data of note from the States is PPI numbers due at lunchtime.

The latest German ZEW Economic Sentiment survey result was released yesterday registering its fifth fall in six releases. The -24.7 reading is the worst since August 2012 and ZEW President, Professor Achim Wambach, commented: “The current survey period has been marked by great political uncertainty. In particular, fears over an escalation of the international trade war with the United States have dampened the economic outlook. The positive news regarding industrial production, incoming orders and the labour market have been greatly overshadowed by the anticipated negative effects on foreign trade,” This weeks main event from the EZ is tomorrows minutes from the last ECB Rate decision. EUR/USD trades at 1.1735 with GBP/EUR hovering around 1.13.

The announcement of the latest set of US trade tariffs against China sent the Aussie lower overnight as a risk off sentiment hit the markets. AUD/USD fell from around .7475 to around .74 before retracing slightly. Retaliatory action from China will now be on the eyes of Aussie holders as its biggest trading partner weighs up its options. GBP/AUD trades at 1.79.

It’s a big day for the loonie as Bank of Canada chief, Stephen Poloz announces the latest interest rate decision. A hike from 1.25% to 1.5% is currently expected however it may be a hawkish hold given the escalation of trade tensions between the US and China. Expect some big moves in USD/CAD should th BoC hold and US PPI numbers beat expectations. The announcements are at the same time at 1:30pm BST. GBP/CAD is at 1.7440.

The Kiwi has suffered overnight on the aforementioned trade tensions between the US and China and tomorrow nights Business NZ Manufacturing Index is unlikely to provide any relief should China announce counter-measures before the end of the week. Market sentiment around the tariffs will likely influence the local dollar for the rest of the week. GBP/NZD is at 1.9480.