The British pound has posted slight gains in the Tuesday session. In North American trade, GBP/USD is trading at 1.2760. On the release front, British CBI Realized Sales impressed with a gain of 12 points, crushing the estimate of 4 points. As well, the BoE released its Financial Stability report.
British Prime Minister Theresa May gambled and lost, as she squandered her majority in parliament. May has had to deal with domestic critics, some who have been blistering in their attacks on her poor performance in the election. With the Brexit talks finally underway, May has to deal with European leaders who are still fuming at Britain’s decision to depart the European Union. There was finally some good news on Monday for the embattled May, who reached an agreement with the DUP, a small Irish party, after weeks of negotiations. The DUP will not formally join the government, but has committed to support the government on its legislative agenda, Brexit and the budget. In return, May will provide Northern Ireland with an additional one billion pounds over the next two years. The deal should provide May with some breathing room in parliament, allowing her to shift gears from damage control and focus on the economy and the Brexit negotiations.
It’s report card on Thursday, as the US releases Final GDP for the first quarter. Preliminary GDP, which was released in May, came in at 1.2%, and this is the forecast for the upcoming GDP report. Recent economic data has been softer than expected, notably construction and manufacturing reports. US durable goods releases were weak in May. Core Durable Goods broke a streak of two straight declines, but the weak gain of 0.1% missed expectations. Durable Goods declined 1.1%, its sharpest decline since June 2016. The slowdown in orders of business equipment could weigh on second quarter growth. Last week, it was the turn of construction numbers to disappoint, as Housing Starts and Building Permits both missed expectations. Consumer spending has also been softer than expected, and if Final GDP falls short of the modest estimate of 1.2%, the dollar could respond with losses.
