The pound continued to struggle last week as a host of different factors continue to weigh on the home currency. The Conservative leadership election and subsequent political uncertainty remains a negative influence on the currency, as does the concern surrounding a no-deal Brexit. Boris Johnson, frontrunner to take over at Number 10, has stated that should he come in to power the UK will be leaving the EU on the October 31st deadline, whether a deal is made with the EU or not. We have seen constantly over the past few months that as soon as a no-deal Brexit is on the cards the pound falls, and a no-deal is now a distinct possibility. Should a no-deal come to fruition it is widely expected that the BoE will need to cut interest rates, which again could be catastrophic for the price of Sterling.
The week ahead
GBP – No major news from the Conservative leadership race is expected this week, with the new leader planned to be announced next Monday 22nd July. This could give us some pre-Brexit normality on the markets with hard data releases influencing currency movements. Tuesday will see the release of UK labour market data, with the Unemployment Rate, Claimant Count Change and the ever-important Average Earnings Index all released in the morning. Keep an eye on these releases, especially wage data, as any deviation from the expected outcome could move the pound either way. Inflation data out on Wednesday will also be key for Sterling this week, as will Retail Sales on Thursday morning.
EUR – There are two big data releases out of the Eurozone tomorrow in the form of the ZEW sentiment index, for both Germany and the Eurozone as a whole, and trade balance data. The ZEW index is seen as a leading indicator of economic health, so has plenty of potential to move the markets. The Eurozone index unexpectedly fell sharply last month so all eyes will be on this again to see if there is any retrace over the past month. Should this improve then expect the single currency to strengthen but if it remains stagnant or falls even further then the Euro could weaken across the board. A second estimate of June inflation will be released on Wednesday which could be worth looking at too.
USD – The Federal Reserve are fully expected to cut interest rates at the July 31strate decision, which is likely to weaken the dollar. In the meantime, only extremely strong economic data could begin to reverse the talk of an interest rate cut and this week doesn’t look like providing that. Retail Sales figures for June will be released tomorrow afternoon, which is the biggest release of the week from across the pond. This is expected to show a slight slowdown from the previous figure, but market movements would be fairly muted should this come out as expected.