IFX Market Report: Wednesday 3rd July 2019

The pound sustained losses on Tuesday as markets starting betting that the Bank of England would lower interest rates this year. Some analysts quoted a 40% likelihood of a rate-cut in December, but this has now been raised to 57% after Governor Mark Carney cited uncertainties regarding trade tensions and Brexit. This comes despite the BoE reaffirming last month at their monthly policy meeting they would raise interest rates in the event of a deal being reached with EU.

The pound was down 0.4% against the dollar to a two-week low, and was 0.5% down against the euro. PMI data showed that June was the was the worst year since 2009 for the UK’s construction industry which added pressure on Sterling.

GBPUSD slipped to a low of 1.2608 following the disappointing construction data but climbed slightly in the afternoon reaching a high of 1.2638. The pound failed to hold on to the gains as the afternoon continued with the pair closing at 1.2602.

GBPEUR opened at 1.1180 and followed a similar pattern dropping to low of 1.1147, bouncing up to 1.1185 before closing down on the day at 1.1156

The US dollar fell from its two-week highs yesterday as optimism about China-US trade talks dissipated, with US President Donald Trump now threatening the European Union with tariffs. The long-running dispute with the EU relates to aircraft subsidies but Washington threatened $4 billion tariffs on additional EU goods. Any positive trade news will likely see the dollar jump modestly as traders are sceptical that minor positive signs will lead to a long-term resolution to these tensions. The dollar index was 0.1% lower.

The euro made brief gains after a media report suggested the European Central Bank said it was in no hurry to cut interest rates in July. However, markets have increased the odds of a rate cut later this month despite ECB members showing differing opinions on the best timing for a rate cut.

EURUSD opened at 1.1292 and was fairly level across the day, closing only slightly higher at 1.1303

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