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Currency Market Analysis

Jul 17, 2019 | Currency Market Analysis

Global Themes

Sterling hits lowest level in more than two years on Brexit disarray

The British pound plummeted overnight after lackluster UK data compounded growing fears of a messy Brexit outcome at the end of October. Sterling weakened 0.7% on Tuesday (UK time), briefly trading below 1.24 against the US dollar before recovering to trade at 1.2408 currently. It hit a 27-month low against the greenback and a new six-month low versus the euro. Against the Euro, the pound has also suffered 10 consecutive weeks of losses — the longest on record.

The sterling’s recent trend of losses against its major trading partners has been attributed to the ongoing race to succeed Theresa May as the next UK prime minister. Previous London Mayor and former Foreign Secretary Boris Johnson is the favorite to defeat current Foreign Secretary Jeremy Hunt in the runoff. In their pitches to Conservative Party members, both men have taken a hardline stance on future negotiations with the European Union, suggesting that they are prepared to walk away without a deal on October 31.

On the economic front, growth in the number of people employed in the United Kingdom slowed with a quarterly increase of just 28,000 - the weakest rise since the June to August period of last year.

US retail sales data stronger, but rate cut still expected

US retail sales data released overnight was stronger-than-expected, increasing 0.4% in June vs expectations of a 0.1% monthly rise. Core retail sales, which excludes automobiles, gasoline, building materials and food services, jumped 0.7% last month and is a more accurate gauge of GDP expectations.

Coupled with solid employment growth in June and a pickup in underlying inflation data released earlier this month, the strong consumer spending data has further reduced the possibility of the Federal Reserve cutting rates by 50 basis points at its July 30-31 policy meeting. However, a 25 basis point rate cut is still 100% priced in to financial markets.

The upbeat retail sales data buoyed the dollar against a basket of currencies, including the Singapore dollar which is currently trading at 1.3588.

Equities retreat from highs as Trump casts doubt on trade war progress

Stocks fell from record highs on Tuesday (US time) after President Trump cast doubt on the trade progress between China and the US.

The Dow Jones Industrial Average slipped or 0.1% to 27,336, ending a four-day winning streak. The S&P 500 closed 0.3% lower at 3,004 and snapped a five-day winning streak. The Nasdaq Composite fell 0.4% to 8,223. The averages had notched all-time closing highs in the previous session.

Trump said the two countries have a “long way to go” on trade, adding the US can slap tariffs on an additional $325 billion worth of Chinese goods “if we want.” His comments come after China and the US had recently agreed not to ratchet up trade tensions in an effort to restart negotiations.

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