Sterling Stumbles as Trade Concerns Mount

The pound erases last week's gains as a lack of Brexit progress exerts pressure while markets strike a cautious tone as trade talks kick off in DC.

Previous Day's Market Highlights

Sterling declined for a third consecutive day on Wednesday as a lack of progress in bipartisan Brexit talks continued to exert downward pressure in an already cautious market. With nothing in the way of economic data markets have gravitated back to the world of politics to seek direction, though with little in the way of concrete news from the talks markets were left acting on conjecture and rumour. Various reports throughout the day, including from ITV’s political editor, stated that the talks were near collapse with additional reports that further talks will not take place until next week. The impasse, combined with low risk appetite in the market, sent sterling lower, with the pound having now erased all of last Friday’s gain over the last 3 trading days. Against the dollar, sterling traded 0.5% lower, hovering around the $1.30 mark. Meanwhile, against the euro, the pound traded at its lowest levels in a week, briefly below €1.16, losing 0.6% over the day. 
 
Elsewhere, more excitement has been found in the Champions League semi-finals over the last couple of days than in FX markets as volatility remains muted. Both the dollar and the euro remained rangebound, though the former did find some early demand as markets looked for a safe-haven in light of escalating US-China trade talks. The US plan to increase tariffs on $325bln worth of Chinese goods to 25% on Friday, with reports that China had backtracked on the majority of the trade deal denting expectations of an agreement being reached this week and decreasing risk appetite. Economic data was lacking throughout the European and North American sessions, the only highlight being Canadian housing starts reaching their highest level since June 2018.
 
Away from FX, global equity markets experienced mixed fortunes, though trading was cautious on both sides of the Atlantic. The pan-European Stoxx 600 ticked up by 0.2% over the course of the day while the US benchmark S&P 500 lost 0.15% - the 3rd straight daily decline. Finally, oil prices were boosted by a fall in US stockpiles with both Brent ant WTI adding nearly 1%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1625 1.1776 1.1512 2.24%
GBP/USD 1.3020 1.3176 1.2866 2.35%
EUR/USD 1.1200 1.1323 1.1110 1.88%
GBP/AUD 1.8655 1.8882 1.8093 4.18%
GBP/NZD 1.9785 2.0021 1.9242 3.89%
GBP/CAD 1.7565 1.7728 1.7300 2.41%

Today's Market Highlights

The economic calendar is quiet once again today, with nothing in the way of data due from the eurozone or the UK. Focus is likely to fall on a number of second-tier releases from the US, the most impactful likely to be producer price index (PPI) figures for April - a useful leading indicator for consumer price inflation. Markets expect PPI to have increased at 2.3% on a year-on-year basis in April, with the less-volatile core figure expected to increase at 2.5% on the same basis, both representing a modest increase compared to March. Also due from the US is the weekly jobless claims figure, expected to pullback slightly from a 3-month high, in addition to trade balance figures for March, expected to show a further widening of the trade deficit. 
 
Data is however likely to take a back seat throughout the day with the first day of the latest round of US-China trade talks, due to be held today in Washington DC, of more interest for investors. Markets will likely set a cautious tone throughout the day, with investors remaining on alert for any headlines from the talks, especially with the US threatening tariff increases as soon as tomorrow. Other data and economic releases are of low importance, though markets may glance over Canadian trade balance figures and the overnight release of the BoJ’s summary of opinions. The RBA will also release their monetary policy statement overnight after keeping rates on hold on Tuesday. Markets will pay particular attention to the likely outlook for monetary policy. 
 
Finally, central bank speakers will also play a part throughout the day, with Fed Chair Powell due this afternoon. Markets are likely to pay particular attention to any comments surrounding the outlook for monetary policy after scaling back bets on a Fed rate cut this year. The Fed’s Bostic and Evans will also speak, with the latter of particular interest having recently made a few dovish comments.

Today's Economic Calendar

Time Currency Release Consensus Previous
1:30pm USD PPI (y/y - Apr) 2.3% 2.2%
1:30pm USD Core PPI (y/y - Apr) 2.5% 2.4%
1:30pm USD Weekly Jobless Claims 220k 230k
1:30pm USD Trade Balance (Mar) -50.2bln -49.4bln
1:30pm USD Fed Chair Powell speech
1:30pm CAD Trade Balance (Mar) -2.45bln -2.9bln
1:50am (Fri) JPY BoJ Summary of Opinions
2:30am (Fri) AUD RBA Monetary Policy Statement