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GBP set for chequered performance?

Published: Tuesday 03 July 2018

  • Trump’s trade wars and Happy 4 July!
  • Merkel safe… for now
  • Australian interest rates on hold… again
We would love to be a fly on the wall for Friday’s crucial UK ministerial meeting about Brexit at Chequers. After months of squabbling, ministers are bidding to end the bitter civil war and finally agree a vision for the UK’s future relationship with Europe. So far, just like the latest PMI manufacturing data, which was largely flat, the Pound has remained steady against major currency partners and is generally sitting in mid-market compared to the EUR and USD. However, a decisive outcome from the Chequers summit could see it rise strongly, while more uncertainty would put more pressure on the Pound.

GBP set for chequered performance?

There has been little movement in Sterling this week, as markets hold their breath for the vital Brexit ministerial summit at Chequers on Friday 6 July. A strong show of unity will cheer markets, while a public squabble amongst Brexiteers and Remainers, along with increasing signs of a ‘no deal’ with Europe, are likely to increase pressure on the Pound. It isn’t just the UK politicos who are worried about a ‘no deal’ outcome; the Italian Prime Minister is vocally opposing such an outcome. Paolo Gentiloni see a ‘no deal’ result as being very dangerous for the EU as well as the UK.
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UK manufacturing PMI steady

Just as Sterling was steady this week, so was the June IHS Markit UK Manufacturing Purchasing Managers’ Index (PMI). It was just 0.1 up on the month before to stand at 54.4. Glimmers of hope from rises in new business, the best for three months, and job creation, were offset by increasing costs and fears over trade tariffs and Brexit. Even so, over 51% of the survey panel believe output  will rise over the coming year, due to market growth, investment spending, organic expansion, planned promotional activity and higher capacity. Worries over price increases, possible future trade tariffs, the exchange rate and Brexit uncertainty all played their part in dampening positivity, but a majority of respondents still expect rising output in future.

Trump’s trade wars and Happy 4 July!

With fresh tit-for-tat tariffs being announced between the United States, China, Europe and Canada, US President Donald Trump is stepping up his trade wars. So far, the Dollar has not appeared to suffer. But on Friday, the US is due to impose a 25% tariff on $34 billion in Chinese imports and the Chinese are expected to strike back. Today (Wed 4 July) is American Independence Day, so markets are closed for the national holiday and a brief respite before the next trade skirmish.

Merkel safe… for now

Pressure on the Euro eased a little as Germany’s Chancellor Angela Merkel agreed a deal with outspoken interior minister Horst Seehofer and leader of the Christian Social Union party over immigration policy, averting his resignation and a political crisis that could have threatened the coalition government. The Euro rose marginally against the US Dollar following the news. However, the agreement, which involves the creation of transit centres, still has to be approved by Mrs Merkel’s centre-left SPD partners, who have traditionally opposed such plans. They are currently studying the details.

Canada Day joy limited for loonie

This week included Canada Day celebrations, which brought some joy to the nation, but little for the beleaguered loonie. CAD has been struggling against the US Dollar and has been trading between 1.31-1.33. Although the Canadian Dollar has been bolstered a little by rising oil prices, that has been offset by the on-going worry that President Trump will abandon the NAFTA trade talks and escalate the trade war  between the US and Canada.

Australian interest rates on hold… again

July’s announcement by the Reserve Bank of Australia (RBA) to leave the base rate at 1.5% for the 21st time in a row - a record low for the most time – steadied the Australian Dollar, which had earlier fallen to an 18-month low against the US Dollar, just above 0.73, over fears about trade war repercussions. But it was boosted by dovish comments in the RBA statement by Governor Philip Lowe that wage growth has troughed and AUD later pushed towards 0.74.

New Zealand business confidence falls

The New Zealand Dollar briefly stuttered below 0.67 against the US dollar this week, before moving closer to the 6.75 level. It also dipped to 0.91 against the Australian Dollar, The Kiwi’s fall was due to a dismal business survey suggesting confidence was at a seven-year low. Cost issues are starting to hit profits and are affecting future planning, according to the New Zealand Institute of Economic Research's quarterly survey.

What to watch out for next week…

Bring your hard hats and look out for the next instalment of the tumultuous Brexit saga, Germany’s political tensions and more potential US trade war fallouts, particularly with China… All this, as well as the nail-biting World Cup quarter and semi-finals! It could be quite a week!
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