Sterling opened Monday on the back foot following one of the clearest indications yet that the Bank of England could cut interest rates at its next meeting. Speaking to The Times, governor Andrew Bailey highlighted “slack” in the labour market, which he suggested had worsened as a result of increased employer national insurance payments. When probed on rates, Bailey commented “I really do believe the path is downward”.
US President Donald Trump this weekend threatened to impose tariffs of 30% on goods from the European Union from 1 August, the new deadline he has set for trade negotiations. This followed European negotiators coming up empty in their quest to come to an agreement with the United States earlier in July.
Talk of trade could well be damaging for the euro, but it may also provide a lifeline for Britain’s battered currency. The pound recorded another losing week against the US dollar and the euro. Despite some semblance of stability returning to the ever skittish bond market, it was another week dominated by bad headlines for the pound and the UK economy more broadly.
Looking in more detail at the UK growth data, May proved a pretty dismal month for most sectors. A couple shoots of green could be found in a strong performance by the computing industry, yet two consecutive months of negative growth will have set alarm bells ringing in the Treasury (if they weren’t already, that is).
Sterling won’t have much time for a breather this week. On Thursday, June’s inflation print will be closely watched as the Bank position themselves to cut in August. Speaking of the Bank, Andrew Bailey will join Chancellor Rachel Reeves in the annual Mansion House speeches.
Aside from the German ZEW consumer study, the calendar is light for the eurozone. However, the question of trade will be burning hotter than ever after Trump’s social media blitz.
The US dollar will also be impacted by trade negotiations, except it has the added complexity of those discussions including several other major economies. Inflation, producer price inflation (PPI) and retail sales numbers provide more intrigue in a busy week across the Atlantic.
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