Spectrum FX Daily Report

GBP: Unlike previous elections, this Thursday’s vote may be somewhat of a low-key event for GBP. A Labour supermajority is fully priced in, and indeed would not deviate too much from the status quo, with only modest tax and spending hikes set out in the manifesto (0.35% and 0.2% of GDP respectively). Sterling could trade in narrow ranges once the exit poll is released (10pm) and results of each constituency trickle through during the early hours. A scenario whereby the Labour majority is smaller than anticipated could be bearish for the UK currency, though this seems unlikely. There will be no tier-1 economic data out this week, so political news will be front and centre in investors’ minds until next Thursday’s GDP data for May and the June inflation report on 17/07.

EUR: Tuesday’s Euro Area inflation report failed to rock the boat. The main measure fell, although core price pressures were somewhat more persistent than thought. Both core and services inflation, which are closely watched by ECB officials, were unchanged and remain elevated at 2.9% and 4.1% respectively. The data will likely have little impact on ECB decision making, particularly given the only modest surprise, with investors continuing to price in a 70% probability of a Euro Area rate cut in September and a total of 40bps of cuts by year-end. There will be two more inflation releases before the crucial September meeting, and clearly a lot can change between now and then.

USD: News on Tuesday had mixed implications for the US dollar. The May JOLTS report surprised to the upside, with job openings unexpectedly increasing to 8.14 million from 7.92M, while quits rose to 3.46M. FOMC Chair Powell, however, struck a dovish note during remarks made in Portugal. Powell said that the US had made ‘significant progress’ on inflation and that the world’s largest economy was back on a ‘disinflationary path’. He failed to provide clues on the timing of cuts, though we think his remarks are in line with our call for a first rate reduction in September - markets are largely in agreement. The latest business activity data from ISM and S&P will be out this afternoon. Investors will, however, have one eye on Friday’s nonfarm payrolls data. Economists are eyeing a modest easing in job creation and wage growth.

For a live rate or to book a trade please contact us.

T: +44 203 440 7550 | E: [email protected] | W: www.spectrumfx.co.uk