11th July 2019 Market Update
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🇬🇧 GBP – The UK economy posted a partial recovery in May and the results helped the Pound to do likewise yesterday morning. GDP rose to 0.3% which was an improvement from -0.4% the previous month which took markets by surprise and enabled Sterling to lift off the 2 year lows against the US Dollar. The recovery can be attributed to car production increasing after the shutdown of many plants in April following the proposed Brexit date. However, concerns of a recession will persist as the rebound was not consistent across the manufacturing sector and Services output remained stagnant.
Today sees no data releases of relevance from the UK and so it is likely that political risk will return to the forefront of market movements for the Pound. Currently the market seems pessimistic about the coming months with neither a no deal Brexit nor a general election leading to any confidence in Sterling.
🇪🇺 EUR – There was a lack of data from the Eurozone yesterday which meant that all movements were dominated by external currencies.
The sparse calendar continues today with only domestic inflation readings for Germany and France being released early in the trading session. Expectations are that the results will be in line with previous readings and so it is unlikely to create any Euro volatility.
🇺🇸 USD – Jay Powell’s testimony to Congress was dovish in tone yesterday which caused the biggest movements of the day. He cited slowing major economies affecting the US as well as ongoing trade disputes as reasons for increased uncertainty. Powell also highlighted persistently weak inflation even in the presence of solid jobs reports and low unemployment. Markets concluded that Powell endorses a rate cut as early as late July and created a 0.4% weakening of the US Dollar. Given the recent strength of the US Dollar, Powell could be deliberately emphasising the dovish stance in order to talk the Greenback down which could continue throughout this month.
Powell will continue testifying this afternoon, but he will be preceded by inflation data for June being released at 13:30. The expectation is for a drop from 1.8% to 1.5% which could hurt the US Dollar further although it may have been priced in partially following Powell comments yesterday. Elsewhere, there are a range of speeches through the afternoon and evening from Fed members who may well provide a guide to how many members are subscribed to a rate cut in July.
GBP: GDP figures producing a dead cat bounce?
EUR: Very little data and minimal movements
USD: Interest rate cut chance increases following dovish Powell comments
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