The sun is setting for Theresa May, her days as a prime minister are limited. Lawmakers have made it clear that she isn’t capable of executing the job at hand- delivering the Brexit deal. Thus, it is about time to leave the office. Speculators are betting that she will resign within days, this means more volatility for Sterling. She tried her latest trick yesterday. May offered closer ties with the customs union and also an option of another referendum on her deal. The news initially brought a lot of excitement for Sterling and we experienced a huge surge in the price, but it started to fade away when traders realized that what she offered was nothing new. The Labour Party leader Jeremy Corbyn made it clear that her deal isn’t welcome and there is nothing new except the repackaging.
In terms of economic data, traders are keeping an eye on the upcoming U.K. inflation data due to 09:30. London time. The forecast is for 2.2%, which is above the Bank of England’s target of 2%. The surge in the headline number is due to the increase in the energy cost because it isn’t the wage growth which is driving inflation. As long as the wage growth isn’t driving the inflation, this leaves the Bank of England out of trouble. Our forecast for CPI reading is also 2.2 percent while the risk to this projection remains to the upside.
As for the global equity markets, we had pretty much flat session over in Asia and US futures are trading lower. The focus is on the trade war, and leaders of both countries, US and China, are taking this as a chess game. They are being oblivious of the consequences of their actions on the global growth. Their Disney world tells them that the other party is suffering more when the reality is that in a trade war, no one really wins.
The Chinese officials have sent another positive signal to Trump administration yesterday that the country is ready to negotiate, but the US needs to drop its bullying behavior.
In the currency markets, it is all about the strength of the mighty dollar. It has picked up steam since March and there are no signs of it slowing down. This is despite the fact that the Fed has adopted a dovish tone with respect to their monetary policy. Even yesterday, James Bullard, St Louis Fed also confirmed that inflation growth isn’t impressive at all and if it continues like this, he has no problem in supporting a rate cut. But looking at the dollar index, it doesn’t seem like that traders are paying any attention to this. The almighty dollar is taking a stab at the resistance of 98.32 and currently trading at 98.08.
Later today we have the FOMC meeting minutes and traders will be looking at this very closely in order to gauge the Fed’s stance towards their monetary policy. What will be quite important in these minutes will be the Fed’s reaction towards the ongoing trade war and the slow down in the global growth. We are not expecting anything new from the Fed, it is highly likely that the Fed ignores the ongoing trade war between the US and China.
