- Boris Johnson quit Conservative PM race last week – BoE’s Carney delivered dovish forecast
- Euro remained low due to referendum aftermath worries – Uncertain future for EU members
- US Dollar laid low by slashed rate hike expectations – Fed policymaker warned of caution to come
- Trade balance data due from the UK and US – US payrolls printing also expected
With the market still coming to terms with the UK’s decision to Brexit from the European Union, the Pound Euro and Pound US Dollar exchange rates continued suffering last week, with Sterling slumping to multi-year lows against its most-traded currency counterparts.
Whether or not we’ll see a change in GBP’s fortunes in the week ahead largely depends on how the leadership battles in the Labour and Conservative parties progress.
It will also be interesting to see who steps up to take leadership of UKIP now that Nigel Farage has stepped down.
British ecostats are likely to continue having a limited impact on the Pound’s performance while Brexit concerns remain so prevalent in the public consciousness, although UK Construction and Services PMI reports are scheduled for release.
UK Economic News: Pound Appeal Limited Last Week due to Widespread Brexit Turbulence
For the most part over the previous week, the Pound was an exceedingly risky option for investors, with the passing of days being marked by events that either sent the Pound soaring or diving against its usual peers.
Sterling began the week on a low note due to a continued rout of confidence following June 24th announcement of the ‘Brexit’ result from the EU Referendum vote.
This was met with a marked changed over Tuesday and Wednesday, however, when the Pound actually managed to appreciate heavily from Monday’s lows due to the conclusion among economists that even if the UK did eventually leave the EU, there would still be an interval of at least two years before this change was effected.
Thursday was perhaps the most extraordinary day of the week in terms of Pound movement, as political developments came thick and fast along with a sting in the tail from Bank of England (BoE) Governor Mark Carney.
The morning saw the contenders for the Conservative (and national) leadership emerge, with Andrea Leadsom, Stephen Crabb, Liam Fox and Theresa May all declaring. Although Boris Johnson was hotly tipped to throw his hat into the ring after featuring prominently in the ‘Out’ campaign, he instead stunned the nation by pulling out of the running; it was speculated that this decision came due to ‘former friend’ Michael Gove also entering the race for PM, despite assumptions that the two men would enter on a joint ticket.
The Pound appreciated slightly after the risk-linked Johnson left the stage, but this was not to last. Over the course of Thursday afternoon, Carney singlehandedly sent the Pound spiralling downwards when he announced that, in the aftermath of ‘Brexit’, the UK interest rate would likely be cut and quantitative easing would also be being ramped up.
Friday saw a mostly flagging Pound stagger over the finishing line after Chancellor George Osborne capitulated on meeting the 2020 budget surplus target due to the perilous state of the national economy.
Euro Ends Week on Strong Recovery, US Dollar Slumps on Lack of Safe-Haven Demand
Although both the Euro and the US Dollar were more stable options than the Pound last week, they still fluctuated considerably on account of the long-term impacts of the Referendum result still being calculated.
Notably for the US Dollar, the week was considerably poor due to comments from Fed official Jerome Powell. Speaking on Tuesday, Powell stated that:
‘The risks to the global outlook were somewhat elevated even prior to the referendum, and the vote has introduced new uncertainties’.
This served to smash chances of a rate hike from the Federal Reserve taking place in the near-term, with many economists pushing their forecasts ahead to 2017 for the earliest chance of an interest rate decision.
For the Euro, although Friday’s manufacturing printings for the Eurozone were positive along with the unemployment rate for May falling from 10.2% to 10.1%, the single currency remained in the doldrums for the most part on ‘Brexit’ concerns, with some economists going so far as to predict that the UK leaving the EU would do more damage to the latter than the former.
GBP, EUR, USD Forecast: UK Trade Stats, ECB Meetings and US Jobs Data due This Week
In the week to come, the UK will bring mixed-forecast construction and services PMIs for June, as well as the national trade balance stat for May. In the latter case, the current deficit is forecast to expand considerably.
From the Eurozone, the major events to watch out for will be a pair of European Central Bank (ECB) announcements; Wednesday will bring the central bank’s non-monetary policy meeting, while Thursday will see the release of the ECB‘s monetary policy meeting accounts.
The US will bring to the table Wednesday’s trade balance for May, which is expected to show a deficit expansion, as well as Friday’s highly impactful change in non-farm payrolls and unemployment rate stats for June. In the former case, a rise from 38k to 170k is expected, while in the latter, an injurious climb from 4.7% to 4.8% is on the cards.