UK political uncertainty over whether the new Prime Minister will be able to command a majority in parliament, combined with the ongoing Brexit saga is keeping the Pound Sterling (GBP) in check. The US Dollar (USD) is also struggling as the prospect of interest rate cuts plus further evidence that trade tariffs are impacting the domestic economy heaps downside pressure onto the currency. As a result, it’s the Euro (EUR) which continues to win out, finding fresh three month highs over the US Dollar (EUR/USD) despite the fact the European Central Bank (ECB) is turning increasingly dovish. Separately, the Turkish Lira (TRY) is coming under renewed pressure after its positive start to the week.
Update: Wednesday has begun with the Pound trading lower against the Euro and US Dollar. GBP/EUR is in the region of 1.1149 while GBP/USD is trading at levels of 1.2676. Today Mark Carney will be quizzed by MPs over the latest inflation report, and there could be some further losses for the Pound if the central banker’s dovish Brexit outlook is taken to heart by markets.
Euro Makes Convincing Gains over the Greenback (EUR/USD)
The theme of broad-based US Dollar weakness continues to dominate the agenda for foreign exchange markets. Despite the fairly resolute tone from the Federal Reserve last week, the market remains convinced that interest rates will be cut, and this is something that could start happening by the end of July. As a result, the Euro is continuing its march higher against the US Dollar (EUR/USD), with the pair pushing out to fresh three month highs yesterday.
Signs Tariffs now Hitting US Companies adds to Dollar Downside
US Dollar weakness was exacerbated by the release of a manufacturing activity survey from the Dallas Federal Reserve yesterday, which suggested that businesses in Texas were starting to feel the effects of the US trade tariffs on demand. The uncertainty was also seen as being likely to drag further on business profitability next year and this is a story that has the potential to gain further exposure in the months ahead. Even the British Pound to US Dollar (GBP/USD) exchange rate managed to rack up a fifth consecutive day of gains yesterday, despite the ongoing political uncertainty in Westminster.
Political Uncertainty Keeps Pound in Check against Euro (GBP/EUR)
The Pound continues to slide against the Euro (GBP/EUR) despite the idea that fresh monetary stimulus will soon be seen from the European Central Bank. The fact that Boris Johnson could face a parliamentary vote of no confidence on his first day as Prime Minister, and that it’s something he could easily lose, is raising a host of constitutional questions and the accompanying uncertainty is doing little to support Sterling. Anything that suggests a smoother transition of leadership may be seen has the potential to provide further support for the British Pound exchange rate as a result.
Why Did it Move? Pound to Turkish Lira GBP/TRY
The Turkish Lira started the week with meaningful gains over the British Pound (TRY/GBP) following the rerun of elections in Istanbul which delivered another blow to the government. However, optimism seems to be running thin already, with GBP/TRY closing in on a return to one-week highs. From starting the week at 7.2875, the cross has traded as high at 7.4400 this morning.