Brexit Uncertainty Weighs on Sterling

After the release of the Brexit white paper on Friday, things were looking up for Sterling. However, with the resignation of David Davis overnight uncertainty has returned and could cause downward pressure on Sterling as we head into a new week.

Previous Day's Market Highlights

The dollar fell on Friday after the US’s June jobs report disappointed expectations. While the US added 213K jobs to the economy, more than the 195K projected, the Unemployment Rate rose to 4.0% from 3.8% and Average Hourly Earnings disappointed. Month-on-month, wage growth slowed from 0.3% to 0.2%, while year-on-year growth was steady at 2.7%, having been forecast to pick up to 2.8%.

While the US Jobs report took the headlines on Friday, other data of note saw the Canadian economy add 31.8K jobs in June (forecast 22.3K) teeing up a Bank of Canada rate hike this week. Also released was the Halifax house price index for June, showing a month on month increase of 0.3%, exactly as forecast.

While no major data was released for Sterling traders on Friday, the pound did strengthen by around 0.3% after the release of the Brexit white paper outlined plans for a softer Brexit than previously feared. This is likely to be a key theme heading into the new week.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1313 1.1471 1.1247 1.95%
GBP/USD 1.3306 1.3448 1.3049 2.97%
EUR/USD 1.1762 1.1853 1.1510 2.89%
GBP/AUD 1.7835 1.7981 1.7472 2.83%
GBP/NZD 1.9455 1.9622 1.8925 3.55%
GBP/CAD 1.7410 1.7791 1.7168 3.50%

Today's Market Highlights

The focus of Sterling traders will immediately turn to the announcement of a new Brexit secretary after the resignation of David Davis overnight. The announcement is expected at some time after 9 o’clock, with the resignation likely to cast doubt on the viability of PM May’s future and cast further shadow over the Pound.

The calendar itself is light on economic data today, with central bank speakers from the ECB and BoE likely to take centre stage. This begins with a speech from BoE MPC Member Broadbent at 8:50am, with focus likely to be on any hawkish rhetoric that would be setting the stage for an August rate hike though this may be overshadowed by the Brexit headlines likely to be crossing news wires this morning.

This afternoon it is the turn of ECB President Draghi to take centre stage with a testimony in front of the EU Economic and Monetary Affairs Committee from 2pm onwards.

The week ahead is a relatively quiet one as markets head into a likely summer lull, with data of note including the release of UK GDP on Tuesday and the Bank of Canada meeting on Wednesday.

Today's Economic Calendar

Time Currency Release Consensus Previous
8:00am EUR ECB's Praet Speaks
8:50am GBP MPC Member Broadbent Speaks
2:00pm EUR ECB President Draghi Speaks
2:10pm USD Fed Member Kashkari Speaks
4:00pm EUR ECB President Draghi Speaks

Caxton