GBP/USD is subdued on Wednesday, and is unchanged on the day. In the North American session, the pair is trading at 1.3040. In economic news, there are no British events on the schedule. In the US, housing numbers were sharp, as Building Permits and Housing Starts improved in June and beat expectations. On Thursday, the UK will release retail sales, and the US will publish unemployment claims and the Philly Fed Manufacturing Index.
British CPI has been gaining strength, but the indicator slowed to 2.6% in June, down from 2.9% in May. This was considerably lower than the estimate of 2.9% and the first time in 2017 that inflation levels have not increased from the previous reading. The soft data eases the pressure on the BoE to raise rates in order to curb high inflation levels. Policymakers at the BoE have been at odds over raising rates – even though inflation is high, the economy has been showing signs of weakness, raising concerns that the economy does not need higher interest rates. On Tuesday, BoE Governor Mark Carney said that the main factor behind high inflation was the fall in the pound, which has dropped sharply since the Brexit vote in June 2016. The BoE hold its next policy meeting on August 4, and analysts expect the policymakers to hold the benchmark rate at 0.25%, where it has been pegged since August 2016.
Britain and European Union negotiators met in Brussels on Monday, marking the start of substantive negotiations on Britain’s exit from the EU. After weeks of "discussions about what to discuss", the UK agreed to the European demand that the negotiations would focus on the rights of EU citizens in the UK and Britain’s bill for leaving the EU, before entering talks on a new trade agreement. Britain has presented its position on guaranteed rights for EU citizens living in the UK, but EU negotiators have said that this offer doesn’t go far enough. The EU has handed Britain an exit bill of EUR 69 billion, and although the May government has agreed that it owes funds to Brussels, it certainly will counter with a much lower figure. With significant gaps between the parties on both of these issues, the negotiations promise to be difficult. Another complication is internal dissent within the May government, with senior officials at odds over a ‘transition period’ for Britain after leaving Brexit. Finance Minister Philip Hammond has suggested a transition period of two years, but Brexit Secretary David Davis has said he wants the UK completely out of the single market when Brexit negotiations terminate in March 2019.
