Sterling was in trouble during Tuesday’s trading session with prices tumbling to a weekly low at 1.2668 after Mark Carney suggested that interest rates should be kept on hold amid Brexit uncertainty. It is becoming clear that the rising fears of Brexit negotiations negatively impacting economic growth continues to weigh heavily on sentiment while prolonged periods of uncertainty has ensured Pound weakness remains a recurrent theme. With both consumer spending and business investments dishing out mixed signals,and tepid wage growth still a cause for concern, ‘now is not yet the time to raise interest rates’ according to Mark Carney.
While last week’s unexpected hawkish rebellion at June’s BoE meeting supported expectations of the central bank taking action, the ongoing Brexit woes coupled with political instability in Westminster should encourage the Bank of England to ‘stand pat’ moving forward. Although raising interest rates may curb inflation, it could end up punishing borrowers, consequently sapping business confidence and hitting consumers further.
EU secures first victory on Brexit timetable
Sterling bears were back in actionon Monday after the first round of the formal Brexit negotiations concluded with Britain backing down and accepting the European Union’s timetable for Brexit. With the European Union already leading the way and making demands in the early stages of talks, it does raise questions over who is really in charge. The Pound may turn extremely sensitive as the talks get under way with any signs of complications likely exposing the currency to further downside.
From a technical standpoint, the GBPUSD is coming under increasing pressure on the daily charts. Ongoing weakness below 1.2775 should offer sellers enough inspiration to send prices towards 1.2600.
Equity bulls are back in town
Financial markets have roared back to life after a solid rebound in technology stocks and optimism over French President Emmanuel Macron’s extraordinary electoral victory boosted risk sentiment. European stock markets ventured into the green territory on Monday while US equities concluded at record highs amid the renewed appetite for risk.
Although Asian indexes were mostly mixed during early trading on Tuesday, equity bulls could receive enough inspiration to elevate Asian markets higher if MSCI decides to include China A-shares in its globally tracked Emerging Market Index. An acceptance by MSCI would be highly beneficial for the second largest economy in the world and may mark a crucial step for Beijing as it embarks on opening its financial markets in a bidto attractforeign investment.
Dollar boosted by Fed hawks
Dollar bullish investors were injected with inspiration on Monday following hawkish comments from New York Federal Reserve Bank President William Dudley thatsupported expectations of the Federal Reserve raising rates further this year. Although Dudley displayed optimism over the health of the US economy, I feel the macro-fundamentals from the States need to display ongoing signs of stability before investors adopt a similar school of thought. With the data calender relatively light this week, the Greenback could edge higher if other Fed officials share similar hawkish viewsto Dudley.
From a technical standpoint, the Dollar Index has found some ground on the daily charts. A breakout above the 97.75 lower high should encourage a further incline towards 98.00.
Commodity spotlight – Gold
Gold was exposed to heavy losses on Monday with prices descending towards $1240 as the Dollar appreciated. The downside was complimented by hawkish comments from a top Federal Reserve official which boosted hopes of the Fed raising US rates again this year. Although the ongoing uncertainty over Brexit talks and political uncertainty in the US may support the commodity in the medium to longer term, short term bears still remain in control below $1260. From a technical standpoint, Gold is pressured on the daily charts with bears eyeing $1240.
