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July 2016

Sterling dips on poor business confidence

Published: Thursday 07 July 2016

  • Sterling dips on poor business confidence
  • German industrial products dives

There seems to be a repetitive theme in politics; the lack of planning for consequences. The Chilcot Report shows how poor the post-invasion plans were with regards to Iraq, the post-leave vote planning is almost non-existent in the UK and now we are also seeing just how unprepared the EU was for the unexpected, but always possible, leave result of the Brexit vote. If most businesses were run with the same level of contingency-void as these political organisations, there would be no businesses left. They rely on the politicos to provide a decisive lead so it is hardly surprising that business confidence in the UK has dropped. A survey conducted by Lloyds shows an index reading that dropped from 32 last month to just 6 in July; a 54 month low. Of course business owners are uncertain and concerned. The MPs need to get their acts together and pronto.  The 2nd round of voting for the new PM is today and Michael Gove's camp has been caught trying to orchestrate an anti-Leadsom movement whilst Boris Johnson is backing Andrea Leadsom. No surprises there then; he wasn't going to back Gove was he.
Sterling slipped a little more on the news but remains in the 2 year low range on most fronts and near a 30 year low against the US Dollar. That has more to do with the USD's status as a safe haven currency though. Technically, the GBP-USD rate is sitting on a 30 year long support line and has the capacity to bounce from here because the Pound is so very weak and has moved a long way in a very short space of time.
The Dollar has paused a little after the Federal Reserve minutes revealed they will hold off from any further interest rate hikes until there is more certainty over the impact of the UK's vote to leave the EU. That could take a year or more and I would suggest there is unlikely to be any G8 rate hike for the time being.
Today's data diary is a quiet one. We have already had very poor German industrial production numbers. A 1.3% decline was well below market expectations but this was pre-Brexit, so we'll have to see if there is any initial impact of that vote when we get the July data. I should say the UK Industrial production data, also released this morning, showed a 6 year high in the 3 months to May. Let's hope that isn't too badly impacted by the Brexit vote.
We'll get the minutes from the last ECB meeting today and some US weekly jobs data but most traders will be pausing for thought ahead of tomorrow's US employment report for June.
Away from the markets, the Welsh exit from Euro 2016 was a sad but emotional moment for many but the success of Andy Murray in moving through to the Semi-finals at Wimbledon made up for that.


I've missed more than 9,000 shots in my career. I've lost almost 300 games. 26 times, I've been trusted to take the game winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed.
Michael Jordan

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
GBP 09:30 UK: Manufacturing production m/m 2.3% -1.2%
GBP 09:30 UK: Industrial production m/m 2.0% -1.0%
EUR 12:30 ECB Monetary policy meeting accounts    
USD 13:15 ADP Non-farm employment change 173K 158K
CAD 13:30 Canada: Building permits m/m 2.1% -0.3%
USD 13:30 US: Unemployment claims 268K 269K

FX Research by David Johnson

Daily Currency Analysis with William Busby

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