Pound remains on the back foot
Currencies Direct July 26th 2016 - 2 minute read
The uncertainty of Brexit is starting to feed into UK indicators. The CBI optimism in the UK fell to the lowest level since 2009 and recent economic data from the UK leans towards a recession in the latter half of 2016. This feedback will heap further pressure on the Bank of England to act in the near term to counter the ‘Brexit effect’.
The Bank of England will be paying very close attention to ongoing data releases to see if the soft forward looking indicators translate into hard data that reflects the post Brexit time frame. The pound is likely to struggle in the near term given the gloomy picture that is being painted.
The Fed is taking more time to weight up the Brexit impact
This week we have the US interest rate decision tomorrow night from the Federal Reserve (FOMC). It is likely that the FOMC will buy more time in weighing up the impact of Brexit on domestic and global growth before taking any firm policy decision. The FOMC are expected to have a slightly hawkish lean given that underlying domestic growth looks firm and US equity markets continue to push towards record highs.
Today we have further feedback from the US economy with Markit service PMI and Markit composite PMI as well as Consumer Confidence and New Home Sales. On Friday we also have US GDP data for the second quarter and the sentiment looks positive.
Resilience of the euro post-Brexit
The euro has held up well given only a small dip in the German IFO expectations yesterday. It is early days, but the Eurozone has shown some resilience to the Brexit vote and this is supporting the Euro in the short term. Again we need to see ongoing data reflect this perceived resilience and the European Central Bank will be eyeing future data releases very keenly.