Pound runs out of steam following Boris bounce

The pound fell back against most of the majors at the end of last week as a lack of new data left the currency rudderless following Boris Johnson’s first round victory in the Tory leadership race on Thursday.

Sterling is on the defensive this morning, with GBP/EUR dipping to €1.1220, GBP/USD slipping to $1.2581 and GBP/CAD off slightly at C$1.6874, while GBP/AUD and GBP/NZD are both down at AU$1.8034 and NZ$1.9334 respectively.

Today is a generally light day for data releases but the Eurozone labour cost and wage growth figures could give some direction to GBP/EUR.

What’s been happening?

Sterling drifted lower against most currencies last week, although it did benefit from a bounce on Thursday when it became clear that Boris Johnson had been anointed as favourite to replace Theresa May as PM.

The Boris bounce didn’t last into Friday, however, as the pound found itself knocked sharply lower against the US dollar following some stronger-than-expected retail sales figures in the US.

Against a backdrop of heightened risk in the wake of the tanker attacks in the Gulf of Oman, the pound was able to take advantage of risk correlated currencies, in particular the New Zealand dollar which was still reeling from the terrible Business NZ PMI figures released on Thursday night.

Meanwhile, the pound struggled against the euro as the EU announced a successful meeting to set a new Eurozone budget, although Italy and its debt situation remained a fly in the ointment.

What’s coming up?

Looking ahead, although there isn’t much in the way of notable economic data due out today, tomorrow will see a raft of European inflation data, including the German ZEW economic sentiment survey which will be closely watched as a big contraction is expected.

At the same time the Eurozone CPI figures will be released, which could be important from the point of view of policymakers at the European Central Bank, with any miss here liable to put pressure on euro exchange rates.

There will be some US building permits figures out this afternoon, which are expected to improve on the month, although the US dollar is likely to be reacting to any shifts in risk sentiment over the coming days following the Gulf of Oman attacks last week and any fallout from that.