IFX Market Report: Monday 22nd July 2019

After the pound saw its biggest daily jump on Thursday in over two months against the US dollar, it failed to close higher on Friday, falling back below the key 1.25 level as traders still worry the UK is heading for a no-deal Brexit despite politicians voting to make that route much harder the new Prime Minister.

A poll by Reuters revealed the average probability of a no-deal Brexit has risen to 30% from 25% last month and 15% in May, making it the highest level since October 2017. In the same survey the probability of a recession this year has also increased to 30% from 25% and the likelihood of recession in the next two years stands at 35%.

Over the weekend, Chancellor of Exchequer Phillip Hammond has announced he will resign on Wednesday if front runner to take over as PM, Boris Johnson wins on Tuesday. He said, “I understand that his conditions for serving in his government would include accepting a no-deal exit. That is not something I could ever sign up to."

On Friday GBPUSD opened at 1.2528 and after a brief drop climbed to a high of 1.2543 but as the session continued the pair fell, eventually touching a low of 1.2481. A slight recovery was seen over the weekend, but the pound has opened lower today at 1.2477.

GBPEUR was able to make headway in the morning climbing from a low of 1.1117 to 1-week high of 1.1163 but slipped slightly in the afternoon, finishing the session marginally higher on the day at 1.1140. GBPEUR has opened this morning at 1.1149.

The US dollar rose on Friday as representatives for the New York Federal Reserve explained comments on Thursday by its President, John Williams which sent the odds of a 50 bps rate cut by the Fed soaring, were not about immediate monetary policy.

Additionally, St Louis Fed President James Bullard said the chances of a rate cut of in July were highly likely given current market condition and inflation, but this was not the beginning of programme of aggressive rates cuts as some has anticipated.

The euro weakened as investors increased bets of the European Central Bank reducing interest rates as soon as Thursday. The odds now stand at roughly 60% for a 10bps cut, verses a 40% chance early last week. The euro fell half a cent against the resurgent US dollar and to a 2-year low of 1.1030 against the Swiss franc.

EURUSD opened on Friday at 1.1259 and dropped throughout the day to a low of 1.1205. The pair opened this morning at 1.1216.

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