The Dollar is again stronger across the board this morning with other major currencies choppy. Global risk appetite has once again come off the boil and the more risk-sensitive currencies, including the Australian Dollar and European emerging market currencies, are underperforming.
Sterling continues to lack direction with markets having to deal with the shenanigans of British politics, Brexit and mixed macro data. Sterling had rallied in the wake of the resignation of Home Secretary David Davis late on Sunday but once again came off the boil yesterday afternoon following the resignation of Foreign Secretary Boris Johnson. The resignation within less than 24 hours of the two most senior and vocal cabinet members in favour of a Hard Brexit has answered few questions. Prime Minister May should now have greater freedom to pursue her favoured soft Brexit approach but there is also now a risk that her leadership will be challenged and that Brexiters will try to harden their stance. Importantly, while the cabinet has seemingly agreed on a blueprint for a post-EU deal it remains unclear whether it is acceptable to the EU and would be voted through in parliament.
UK macro data are far from strong but not weak enough for the Bank of England to take off the table a possible August rate hike. Industrial output contracted 0.4% mom in May (well below the consensus forecast of +0.5% mom) and the trade deficit was unchanged at £12.4bn. The Office of National Statistics in its first ever publication of monthly GDP data estimates that UK GDP rose 0.2% in the three months to May, a growth rate unchanged from Q1 2018 and in line with the NIESR estimate. So growth remains soft with little or no positive contribution from trade but at least GDP growth is no longer slowing based on these data.
Net-net GBP/USD continues to trade just above 1.32, where it has been trading for most of the past month. England play Croatia in the semi-finals of the Football World Cup tomorrow evening but recent precedent suggests that a victory (or a loss) for Team England may not have a material or lasting impact on Sterling.
