Sterling under pressure

Sterling has been on the back foot since last Friday’s softer than expected UK GDP data. It has fallen to around $1.3440 against the dollar, its weakest level in about a month, and to almost £0.87p against the euro, which is just shy of its year-to-date low of £0.8740. Tonight’s Mansion House speech by the Bank of the England Governor, which may touch on the near-term outlook for monetary policy, as well as UK inflation and labour market data tomorrow and Thursday respectively, could well have a bearing on whether the pound arrests its recent slide or heads further south. Meanwhile, the euro is holding its own against the dollar notwithstanding Trump’s tariff announcement over the weekend. It is trading just below $1.17 this morning, a touch firmer than this time  yesterday morning. The single currency has come off its highs (of over $1.18) against the US currency though as the latter generally has regained some ground lately. In this regard, today’s CPI inflation data in the US may determine whether the dollar can build on these gains in the near-term.

European equity markets recovered from steep enough losses early yesterday morning to end just marginally lower on the day. US stocks also regained ground during the course of the day to close marginally higher overall, ahead of the start of Q2 earnings results today. In government bond markets, US yields finished slightly higher on the day, while German yields were broadly flat and UK yields a touch lower. They are all a touch lower at the open this morning though, helped by some easing of the selling pressure on Japanese bonds (for now at least) which has driven yields sharply higher over the past week or so.

Ahead of official labour market data in the UK on Thursday, the latest KPMG/REC jobs survey reports that “uncertainty over the business outlook… led companies to reduce their hiring activity” in June, with permanent placements falling at their fastest pace in nearly two years, while starting salaries increased “modestly” in the month.

Growth in China’s economy in the second quarter came in better than expected according to data published overnight, with GDP increasing by 1.1% on the quarter and by 5.2% on the year, a slight deceleration from 1.2% and 5.4% respectively in the first quarter of the year.

For the day head, the key economic release is the CPI report for June in the US, with the market expecting both headline and core inflation to have nudged up last month (to 2.6% and 2.9% respectively), while industrial production data are due in the Euro area.