GBP/USD is showing some movement in the Tuesday session, but is almost unchanged on the day. In North American trade, the pair is trading at 1.3040, up 0.11% on the day. On the release front, British CBI Industrial Order Expectations slowed to 10, shy of the estimate of 12 points. In the US, CB Consumer Confidence jumped to 121.1., easily beating the estimate of 116.5 points. There was positive news from the manufacturing sector, as the Richmond Manufacturing Index jumped to 14 points, well above the forecast of 7 points. On Wednesday, the UK releases Preliminary GDP for the second quarter, with an estimate of 0.3%. In the US, the Federal Reserve releases its monthly rate statement, and we’ll also get a look at New Home Sales.
Investors remain concerned about Brexit, 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, much to the dismay of the EU. 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 on EU citizens in the UK and the size of Britain’s debt to the EU. With hard feelings on both sides, the negotiations promise to be difficult. The City of London, which has become one of the primary financial hubs in Europe, is bracing for an exit of thousands of jobs, as companies relocate to the continent ahead of Britain’s departure from the EU. There are reports that Deutsche Bank could transfer hundreds of trader jobs and as much as $350 billion from its British entity to offices in Frankfurt. If other large banks and companies follow suit, it would be a blow to the British economy and the pound could lose ground as well.
The Federal Reserve is in the spotlight, as it holds its monthly policy meeting on Tuesday and Wednesday, With the odds of a rate hike at just 3%, the markets will be focused on the Fed’s rate statement, which will be released on Wednesday. US numbers in the second quarter have been mixed, and inflation remains well below the Fed target of 2.%. Given these economic conditions, investors are unsure if the Fed will raise rates in December, with the odds currently at 47%, according to the CME Group. Analysts will be looking for nuances in the language of the statement, and a dovish tilt from the Fed could hurt the dollar and boost the red-hot euro. Another issue for Fed policymakers is the $4.2 trillion bond portfolio, a result of the aggressive quantitative easing program which was put in place after the financial crisis in 2008. In June, the Fed outlined plans to reduce its bloated balance sheet, with experts circling September as the start date of the reduction.
