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Sterling stumbles after world cup exit

By Jake Trask

Sterling remains subdued this morning as England’s departure from the world cup and Brexit uncertainty weigh on the pound. The government is due to release its white paper on its proposed future trading relationship with the EU later today with reaction from the other side of The Channel likely to be a driver of sterling once the details have been digested by EU chief negotiator, Michel Barnier and co. The publication later today may see some market movement however the reaction from the EU will be the true litmus test of the revised plan. Donald Trump is due to arrive in the UK later today on his first official visit to these shores since becoming President. His first stop off on his European trip riled Nato members yesterday as he criticised members of the bloc for their lack of defence spending. Expect Brexit rhetoric and comments on trade from the President to make headlines and hit risk assets throughout the rest of the week. GBP/USD is lower this morning trading around the 1.32 handle. Bank of England Governor, Mark Carney is due to speak later today however he may keep his cards close to his chest re: possible rate rises given next week sees wage, inflation and retail sales data from the UK. Should this trio of prints hit target then an August rate hike may become fully priced in by markets to the pounds benefit.

Trumps latest slew of trade tariffs on Chinese exports announced yesterday saw a sell-off in risk assets yesterday hitting global equity markets around the world. News of scheduled talks between US and Chinese officials over the proposed tariffs has calmed the markets however seeing stocks around paring some of yesterday’s losses. Interestingly, despite the global ructions re: trade USD/JPY has pushed higher breaking through 112 level for the first time in six months with support given by better than expected PPI numbers yesterday afternoon. It appears markets see the action by the Trump administration as being more detrimental to China than America at present given the solid growth, employment and inflation figures the US is seeing of late. Today sees US CPI numbers released at lunchtime with a monthly rise of 0.2% for the core and overall gauge expected.

EUR/USD has fallen below 1.17 overnight as dollar sentiment drives the pair lower. The latest ECB Monetary Policy Meeting Accounts is the big event for the shared currency today with any clues on the timing of a future rate hike one of the markets main talking points at present. Currently Q3 2019 is the market consensus for a move towards normalisation of policy so any hints of Q2 being discussed will see a euro rally. EUR/USD trades at 1.1680 and GBP/EUR still hangs around 1.13.

The global sell off in equities has hit the Aussie hard this week however a calming of nerves over Trump/China has seen a small bounce for the local dollar with AUD/USD pushing back towards .74. There are no more headline making data-prints from Down Under this week so Trump comments and possible reactionary measures from China over trade will drive commodity currencies direction. GBP/AUD is at 1.7895.

The Bank of Canada raised rates to 1.5% as widely expected yesterday however the loonie was sold off throughout the afternoon as BoC head, Stephen Poloz highlighted trade tensions with the US as being a headwind for the economy. USD/CAD is close to the 1.32 handle as positive market sentiment pushes the greenback higher across the board. GBP/CAD is at 1.7440.

Tonight sees the Business NZ Manufacturing Index released with holders of the kiwi hoping for an uptick from last month’s solid but unspectacular 54.5. China Trade balance figures will likely move the local unit more as well as the aforementioned Trump/China tensions. GBP/NZD is at 1.9525.