The Winner Takes It All

The week begins in sluggish fashion, with sterling traders nervously awaiting the identity of the next PM as the Tory Leadership contest concludes.

Previous Day's Market Highlights

G10 FX pairings hardly budged from their opening levels on Monday as a fresh trading week got off to a sluggish start, with investors cautious ahead of a number of significant risk events in the coming days - including Thursday's ECB policy decision and next week's FOMC meeting. The dollar kicked off the week in mixed fashion, adding around 0.1% against a basket of peers as markets continued to reduce their bets on the Fed cutting rates by more than 25bps at the end of the month. The dollar's advance came despite softer than expected economic data, with the Chicago Fed's national activity index recording a below forecast -0.02 in June, a 3rd consecutive month in negative territory. The lack of market reaction should come as little surprise however, with the release typically being of little importance. In contrast to the greenback's advance, the Canadian dollar was Monday's worst performer, tumbling around 0.4% as market participants became slightly nervous over the Canadian economy. Following Friday's softer than expected retail sales figures, Monday's data showed wholesales decreased by 1.8% in May, the largest monthly decline since March 2016, raising concerns over demand in the Canadian economy.

Elsewhere, sterling trod water within familiar ranges ahead of a key week of political events (see below). The pound recovered from modest early losses sparked by the resignation of Sir Alan Duncan, Foreign Office Minister, in addition to a survey from NIESR putting the chances of the UK already being in technical recession at 25%. These losses were however short-lived, with the pound ending the day unchanged against the euro, and 0.2% lower against the dollar. Price action for the common currency was similarly subdued, the euro trading flat against the dollar over the course of the day. As an aside, of some interest when looking at euro crosses is how the common currency has been trading against the Swiss franc. EUR/CHF took a brief dip below the 1.10 level on Monday, sparking chatter that the Swiss National Bank may intervene to prevent the franc from appreciating too significantly. This may be a theme to watch in the coming weeks as the ECB look to loosen policy.

Away from FX, subdued trading was also to be found in equity markets, with the pan-European Stoxx 600 closing unchanged. In the US, the benchmark S&P 500 gained just over 0.25%, closing in on a fresh record high. Finally, oil prices continued to firm after Friday's Iranian tanker seizure. Both global benchmark Brent and US WTI crude settled with gains of more than 1%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1130 1.1209 1.1048 1.44%
GBP/USD 1.2455 1.2705 1.2381 2.55%
EUR/USD 1.1190 1.1371 1.1188 1.62%
GBP/AUD 1.7745 1.8172 1.7630 2.98%
GBP/NZD 1.8495 1.8960 1.8368 3.12%
GBP/CAD 1.6360 1.6642 1.6145 2.99%

Today's Market Highlights

45 days after the Conservative Leadership contest began with the resignation of Theresa May, the winner, and new Prime Minister, will finally be announced at approximately 11 o'clock this morning - though this will not be the end of the current political uncertainties. Boris Johnson remains the odds-on favourite, with his victory seen by many as a foregone conclusion, hence the degree of 'Boris risk' we have seen priced into the pound over recent weeks as markets adjust to his 'do or die' stance to leaving the EU on 31st October. Therefore, should Jeremy Hunt upset the odds to win the contest, sterling would move significantly to the upside. However, no matter the victor of the contest, focus will quickly shift to what comes next. The new Conservative Party leader will become Prime Minister on Wednesday afternoon, at which point the first Cabinet appointments will begin to be made. Markets however will be focusing on the new Prime Minister's initial remarks, especially on the subject of Brexit, with speeches from the new PM due on Wednesday evening and Friday morning. Overall, political uncertainties are set to persist, likely to keep a lid on any significant sterling appreciation over the coming months.

Elsewhere, a number of economic releases are due from the US, though all are second-tier and typically result in little immediate market volatility. Housing will be in focus with the release of May's home price index, expected to show prices increasing by 0.3% MoM, as well as June's existing home sales data, set to show 5.34 million homes sold last month. Also due from the US will be manufacturing figures from the Richmond Fed, set to show the index rebounding to 5.0 after last month's disappointment. 

Data releases from other economies are also likely to have a limited impact on price action. July's preliminary consumer confidence figures are set to show consumers remaining pessimistic, with the index reading just -7.2. Meanwhile, also from the eurozone, market participants may glance over the ECB's quarterly bank lending survey to gauge the supply of and demand for credit across the bloc. Tuesday's only other notable release comes overnight from New Zealand, where trade figures for June are due.

Finally, central bank speakers are relatively thin on the ground, with both the ECB and FOMC in their purdah periods ahead of upcoming policy announcements. Today's only scheduled remarks are due from BoE Chief Economist Andy Haldane.

Today's Economic Calendar

Time Currency Release Consensus Previous
Approx. 11:00am GBP Conservative Party Leadership Election Results Announcement
2:00pm USD Housing Price Index (MoM - May) 0.3% 0.4%
3:00pm USD Existing Home Sales (MoM - Jun) 5.34mln 5.34mln
3:00pm EUR Consumer Confidence (Prelim. - Jul) -7.2 -7.2