Boris Johnson’s confirmed appointment as Prime Minister provided some momentum to GBP last week, termed the ‘Boris bounce,’ but this proved short-lived and sterling moved back below the 1.12 and 1.25 interbank rate against the EUR and USD respectively.
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As Parliament begin their summer recess Boris Johnson can only watch the clock tick towards the Brexit deadline of October 31st. Little progress with official negotiation is expected over the coming weeks, but with rumours circulating that Boris intends to personally take centre stage, focus will inevitably move to the next official meeting of key European leaders at the G7 summit in France on August 24th.
So far, the tone of discussion has been hostile with Michel Barnier, the EU’s chief negotiator referring to the tone of the PMs first speech as ‘rather combative,’ while Boris has reiterated his stance that we will leave Europe on October 31st “come what may.” GBP could be responsive to any commentary released over the coming weeks.
Despite the lack of political events in the diary GBP faces a busy week of economic releases. Nationwide House Prices data is released at the beginning of this week along with mortgage approvals. Housing data is considered as a sensitive factor to the UK's economy. As is consumer confidence which is released Tuesday evening. A high level of consumer confidence may stimulate economic expansion while a low-level could drive to economic downturn; the expected reading of -11 would be an improvement on the previous -13 figure however doesn’t paint a particularly positive sentiment from the UK consumer.
Thursday’s Manufacturing PMI will reflect business conditions in the manufacturing sector. As a large contributor to UK GDP this is an important indicator of economic conditions in the UK and a reading over 50 is seen as positive. With so many insights in to the current economic situation in the UK, GBP could be volatile, therefore, any clients with a position to buy or sell the pound against any other currency, may wish to contact he FCD team for a quick review of their position with their account manager.
The Bank of England will meet on Thursday to announce its latest Interest Rate decision and release its Quarterly Inflation Report. It is widely expected that the bank will keep Interest Rates on hold at 0.75%. This expectation comes in the face of mounting commentary about a change in monetary policy from the Bank of England as the possibility of a hard Brexit rises. According to Bloomberg the Royal Bank of Canada has become the first to predict a rate cut from the Bank of England as soon as November this year.
“We see the MPC delivering a 25 basis-points rate cut this year in response to the extending of Brexit uncertainty and weaker external environment,” RBC analysts Peter Schaffrik, Cathal Kennedy and Vatsala Datta said in a note. “We no longer see the MPC as capable of delivering on its ‘gradual and limited’ hiking bias, even in the event of a ‘smooth Brexit.’” However, Bank of England Governor Mark Carney and his fellow policy makers still maintain a course of ‘gradual and limited’ rises will be necessary if the Brexit process goes smoothly. Any signals to a change in approach by the Monetary Policy committee or a surprise move in interest rates could cause movement for sterling exchange rates.
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