Global Themes

Today, the long-awaited white paper on Brexit is expected to be unveiled in parliament, which will outline the full details of Prime Minister Theresa May’s proposals on the future relationship between the UK and European Union (EU). Ms May sought to unite her cabinet at Chequers last Friday, where she saw close support for the Brexit white paper, which is based on a “common rulebook” and “facilitated customs arrangement” with the EU. However, disgruntled hard-line Brexiteers within the cabinet have added to an already tumultuous week for UK politics with key ministers resigning and rumours of an alternative document to the white paper to be revealed by Eurosceptic backbenchers. This could spark further chaos, weakening the government’s hand in negotiations with the EU and potentially increases the chances of a no-deal Brexit, which is likely to hurt the British Pound.


The Euro opens today’s trading session just below $1.17 against the US Dollar and German inflation figures this morning failed to spur EUR/USD to an early retest of this level. Germany’s inflation data came in line with expectations of 2.1% y/y and has had little market impact. Attention will now move to Eurozone industrial production data at 10:00am, which is expected to tick higher from 1.7% to 2.1% y/y and leap higher from -0.9% to 1.2% m/m for the month of May. At 12:30pm the minutes from the European Central Bank’s (ECB) June meeting will be released. Market participant will pick apart the minutes for any clues on future interest rate guidance. If the minutes appear to be more ‘hawkish’ this could allow the Euro to retake the $1.17 handle.

According to ECB policymaker Francois Villeroy de Galhau, if inflation conditions warrant a move, the ECB’s first interest rate rise could take place at some point through the summer of 2019 at the earliest. In June the ECB revealed it expected its interest rates to stay unchanged at least through the summer of 2019, leaving investors guessing whether it could mean a decision during the summer or only later. The minutes today could give further insight on the matter, which could dictate the Euros direction going forward.


Sterling’s resilience has certainly been tested amid this political turmoil as market participants weigh up the chances of a hard or soft Brexit scenario evolving. GBP/USD continues to hang on to the $1.32 handle and GBP/EUR remains perched above €1.13 this morning. Even if the publication of the white paper goes smoothly today, the question remains whether the EU will even accept Ms May’s new proposals.
Since touching a 4-month low near €1.12, GBP/EUR is searching for a break back towards €1.14, but Brexit uncertainty appears to be limiting upside and today’s white paper could infuse further volatility.


The US Dollar moved in a positive manner ahead of the inflation figure for the US this afternoon. At 1:30pm the US Consumer Price Index (CPI) will be released and is expected to rise to 2.9% y/y for the period of June, up from 2.8% which was previously reported. The dollar is already on the front foot since rallying yesterday after Producer Price Index (PPI) beat forecasts in the US. The PPI number rose as a result of short term oil prices picking up providing support for the dollar. Another positive print for inflation today could cause further dollar buying and weigh negatively on EUR/USD and GPB/USD. EUR/USD had been enjoying spells of above $1.17 for the past five trading days before falling close to 1-cent yesterday. This morning the pair currently hovers around the mid-$1.16 area. A positive number could see the pair fall as low as $1.1513, a level which has been tested on multiple occasions since the end of May.

The dollar has benefited from expectations of further interest rate hikes from the Federal Reserve later this year, however additional dollar upside could be capped due to global trade tensions escalating. The US-China trade war took another turn yesterday with the US looking to impose further tariffs on Chinese goods. In the long run many analysts foresee this impacting both the US and Chinese economies in a negative way, thus potentially pushing investors away from their respective currencies (source: Reuters).

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