Sterling loses more ground

The euro jumped to well over $1.19 against the dollar immediately following the ECB’s latest policy announcement yesterday but subsequently fell back to end little changed overall on the day at just above $1.18. Sterling lost further ground amid continuing Brexit woes, weakening to over 92p against the single currency and falling to $1.28 against the dollar. Meanwhile, US stocks reversed course, closing lower on the day, with European stocks down as well, while core bond yields were not much changed

The ECB left policy on hold yesterday but said that “in the current environment of elevated uncertainty, the Governing Council will carefully assess incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook” adding that it “continues to stand ready” to adjust policy if necessary

The ECB made marginal changes to its forecasts for growth and inflation. It now expects the economy to contract in GDP terms by 8% this year, slightly less than previously forecast, before rebounding by 5% in 2021. It expects inflation to average just 0.3% this year and 1% next year, both will shy of the ECB’s target for inflation of close to 2%

The EU has called on the UK government to withdraw those measures in the Internal Market Bill that conflict with the Withdrawal Agreement “in the shortest time possible and in any case by the end of the month”, adding  that “the UK has seriously damaged trust between the EU and the UK”

Michel Barnier says “significant differences remain (with the UK) in areas of essential interest for the EU”, while noting that the EU is “intensifying its preparedness work to be ready for all scenarios on 1 January 2021”

The UK economy recovered ground for a third month in a row in July, with GDP increasing by 6.6% following a gain of 8.7% in June

Data due today includes CPI inflation in the US