IFX Market Report: Tuesday 16th July 2019

On Monday the pound returned towards 6-month lows against the US dollar and the euro as ongoing concerns about the UK’s economic growth, a potential interest rate cut, and a new prime minister all weighed heavily on sterling.

Despite ending a 9-week losing streak on Friday, dovish comments from Band of England officials have turned investors bearish on the pound causing it to fall steadily throughout Monday’s session by 0.5% against both the dollar and euro.

Analysts believe the BoE will fall in line with other central banks around the world by reducing interest rates at some point this year. Up until recently the BoE had hinted at raising rates, but when markets started to dismiss the comments as unlikely, the pound began to drop. With the added uncertainty of the conservative leadership campaign the pound’s decline could continue to around 1.2380, the February 2017 low.

GBPUSD opened at 1.2561 and fell across the day, closing near a low of 1.2517

GBPEUR opened at 1.1135 followed a similar pattern, taking losses across the day and closing at a low of 1.1114

The US dollar gained slightly on Monday amid reduced summer trading but was limited by the expectations of a rate cut this month. The 0.25% cut is now fully priced in but there is a 20% chance of a 0.5% cut according to some analysts. Data released this week could increase the probability of a 0.5% cut such as the US retail sales and industrial production which are due today. The index that tracks the dollar against a basket of six major currencies was up 0.2%.

The euro was slightly down against the dollar and investors are not optimistic about the single currency in the short term. US Treasury yields will remain the highest in the developed markets despite the prospect of future Fed rate cuts. The Australian dollar was last up 0.2% and the Chinese off-shore yuan was up 0.1%.

EURUSD opened at 1.1278 and briefly gained in the morning, before falling across the afternoon before closing near a low of 1.1260

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