GBP/USD has posted slight gains in the Monday session. In North American trade, the pair is trading at 1.3020, up 0.23% on the day. On the release front, there are no British events on the schedule. In the US, Existing Home Sales dropped to 5.52 million, well short of the estimate of 5.59 million. Later in the day, the BoJ releases the minutes of its June policy. On Tuesday, the US releases CB Consumer Confidence.
Brexit jitters continue, as Prime Minister May’s weak government must negotiate with a European Union that has no interest in providing any favors to Britain as its leaves the club. Substantive negotiations between the two sides have started, but the two sides remain far apart on key issues, such as the jurisdiction of the European Court of Justice after Brexit and the size of Britain’s debt to the EU. With hard feelings on both sides, the negotiations promise to be difficult.
British CPI has been picking up speed in recent months, 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, suggesting 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.
It was another tough week for President Trump. Early in the week, Trump’s cherished flagship healthcare proposal, which aims to replace Obamacare, stalled in the Senate after two Republican senators said they would not support the bill. Trump has failed to pass any significant legislation so far in his term, and investors are becoming more skeptical as to whether Trump will have any more success with his tax reform and fiscal spending plans. With the Democrats forming a rock-solid wall of opposition, dissension among Republican lawmakers, many of whom are uneasy about Trump, could doom attempts by the White House to get bills through Congress. There was more bad news as Robert Mueller, the special counsel who is investigating alleged collusion between Trump and Russian officials during the US election, said he would review business transactions involving Trump as well as his associates. Trump has said that Mueller’s scope is limited to Russia, so the stage could be set for a Nixon-type showdown between the president and the special counsel investigating wrongdoing by the president.
