UK Inflation, Unemployment figures and the latest GDP data are likely to cause the most Sterling movement this month.
Outlook on Sterling for July
Aside from Brexit the Pound is being viewed in the light of the likelihood of the Bank of England raising interest rates in the future. Such concerns really saw the Pound rising back in April, the most recent interest rate decision offered some glimmers of hope here as Andy Haldane, Chief Economist changed tact and voted for a hike bringing the levels to 6 against, 3 for, up from the 7-2 split from May.
Monday 2nd, 3rd and 4th of July sees the latest UK PMI (Purchasing Managers Index) surveys. Expectations are for gentle declines in both Construction and Services but the data holding firm in Manufacturing. This means the Pound might dip slightly on the 3rd and 4th although, with all 3 sets of data likely to come in above 50, representing expansion in the sector, Sterling should not suffer too much. Monday July 9th sees the latest NIESR (National Economic Social Research) GDP (Gross Domestic Product) release which last month caused Sterling to fall. The Bank of England had linked raising interest rates in the UK to economic performance here so any good or bad number would see Sterling reach accordingly in light of possible future interest rate hikes.
Tuesday 17th July sees the latest UK Inflation data whilst Wednesday July 18th will deliver the latest Unemployment data. Either release could sway the Bank of England, these data sets and the latest GDP data on the 26th will I believe be the busier days for the Pound. With no interest rate decision for the UK due until the 2nd August, the economic data due will take much more of a precedent in July.
In politics we also have a number of concerns to tackle, with the next stages of Brexit proving elusive GBPEUR has been range bound once again in June, not even moving 2 cents between the high and the low. I feel this is reflective of the lack of shifts in the market, for example on Brexit we have learned very little new information to drive Sterling out of the ranges.
With no concrete news on any deal (or not) due in July, the Pound could struggle further in the month of July as investors await further news on Brexit. The key issue is that of the Customs Union arrangements, Theresa May and her team have so far really struggled to make headway except to say that it will be dealt with in the future.
When to buy Euros in July?
The key news for the Eurozone in July will I believe be the ECB interest rate decision on the 26th.
Drivers on the single currency have included mainly economic developments arising from the ECB (European Central Bank) discussing monetary policy, the general direction of this has been downward or negative for the Euro. There have also been political shifts too with policy on how to deal migration issues being debated by key EU members.
The key news for the Eurozone in July will I believe be the ECB interest rate decision on the 26th July where investors will be very keen to better understand just how Mario Draghi and his team are viewing the Eurozone economy and what lies ahead for the future.
What is often most interesting from the ECB Interest rate decision is the Press Conference which accompanies the decision, investors can better understand how Mario and his team view on-going developments. Trade War issues have been a concern for investors as it is felt the Eurozone will come off worse, this has put added pressure on the ECB and any further escalation of the Trade Wars could see the Euro lose ground.
The start of the month sees a whole host of important Eurozone data with Unemployment on the Monday 2nd, Retail Sales on the 3rd July and Wednesday July 18th is a key date with the latest Consumer Price Inflation data.
The end of the month also sees some important data with the latest GDP (Gross Domestic Product) data released for the Eurozone on the 31st. This will also include news on Inflation too this day, all of which will shape prospects for the Euro in the future. The ECB had recently cut growth forecasts for 2018 so the market will be keen to determine how well the ECB has been reading the situation.
Politics will remain a factor for the Eurozone too and the ECB. The political situation is currently being dominated by the migration issues with discrepancies over the best way to manage the conflicting sides. Angela Merkel is facing pressure not just from the Italy and Hungary over the distribution of migrants but also her own party.
Whilst this is not having a direct effect on the Euro, it represents a move away from the previously very positive view of Eurozone leaders all acting in unison together to achieve one single aim. The ECB is clearly not feeling as positive as it was last year regarding interest rates.
It seems that with no major events scheduled for July GBPEUR might well find itself trading in these more familiar ranges once again.
GBPEUR is under pressure from both sides as there are both positive and negative elements for both the Pound and the Euro. This might not sound too insightful, every currency has good and bad, the point with this pair is investors are not receiving anything strong enough to warrant a move outside of the more familiar ranges.
This was the case for much of June, we only saw movement of 1.72 cents. Ranges over the last 3 months on GBPEUR saw 3 cents and interestingly since October 2017 the range of trading has been less than 4 cents! I think July could well be very similar trading patterns for GBPEUR with the range of 1.12-1.16 holding firm.
With no Bank of England decision on UK interest rates until August and no important news expected on Brexit, Sterling might well be treading water, although it will remain sensitive to the shifts in sentiment relating to interest rates as we get more news on the UK’s economic picture.
It feels like clients selling Euros for Pounds will have the most to lose with the rate most likely to be delivering Euro weakness as economic and political pressures in the Eurozone take the attention away from the Pound.
When to buy US Dollars in July?
The uncertainty over Brexit and the lack of clarity over a UK interest rate hike should ensure the US Dollar is the stronger in July.
The US Dollar has been very strong lately, driven largely by the Trade Wars situation which has presented markets with a series of uncertainties. The US Dollar has reached its strongest points in 2018 versus the Euro and US Dollar.
While in April the market felt the Trade Wars were bad for the US, and the US Dollar weakened, we have now seen it rising in value. This is as the US economy continues to grow and investors are bracing themselves for further interest rate hikes.
There is also a perception that the US will come off the least-worse from any major deterioration that arises from these Trade Wars. With the European Central Bank regularly referring to the situation and the potentially negative impact on the global economy, the Euro has been weaker leaving investors preferring to hold US Dollars.
This trend might continue in the coming weeks and months as we see the Trade Wars situation developing. If the Federal Reserve continue to raise their interest rate whilst the ECB scales back their plans and the Bank of England dithers, the US Dollar will remain a very attractive currency.
A key decision for the US Dollar is on Wednesday July 4th with thee release of FOMC Minutes from the previous meeting, where we will learn exactly what the US Federal Reserve will be thinking from their previous interest rate decision and just what hikes are possibly planned for the rest of the year.
There is no actual interest rate decision in July for the US but the decision is on the 1st August so the US Dollar could see a choppy end of the month.
In June the US Dollar touched some of the best rates in 2018 to buy Sterling as the Pound lost ground on weaker economic data. This trend might well remain in place as whilst the US Dollar has gently softened at the time of writing, the fundamentals seem to support a stronger US Dollar over the Pound.
The likelihood is continuing Trade War issues will put pressure on the Eurozone and global economies, this makes holding the US Dollar more attractive. The interest rate differential too is keeping the US Dollar stronger against the Pound, with the US interest rate now 2% and likely to rise higher, investors will prefer to hold the greenback versus the Pound.
The uncertainty over Brexit and the lack of clarity over a UK interest rate hike should ensure the US Dollar is the stronger in July. However, any surprise positive data could help the Pound. A range between 1.30 and 1.35 seems likely.
With neither central bank meeting until August, the market might be waiting to receive the latest policy announcements before we see any major shifts.
When to buy Australian Dollars in July?
The Australian Dollar is slightly weaker as concerns over Trade Wars threaten the strength of the Chinese economy, a major Australian trading partner. The Aussie Dollar has been see-sawing in June as investors buy and sell according to the rise and fall in sentiments over the Trade Wars.
The Australian economy is performing well but the Australian Dollar is a commodity based currency which means it is very reactive to developments on the global economy. The Australian economy has performed well in recent years but investors have been moving money out of the Aussie into currencies they think will provide a better return.
As the US now has a higher base interest rate (2%) versus Australia’s 1.5%, the US offers a better return. Along with the US Dollar’s safe haven status, it’s considered a more favourable investment. Consequently, the Australian Dollar has lost value and could lose more if Trade War concerns persist or escalate.
Key information for clients looking to buy or sell Australian Dollars in June is the Tuesday July 3rd Reserve Bank of Australia interest rate decision and statement. No change is expected but there are growing calls for a hike. This is one of the reasons why the Australian Dollar is containing some of the losses we could have expected at the mercy of rising of US rates and Trade Wars concerns.
Wednesday July 4th is the latest Retail Sales data, the behavior of the consumer is very important for the RBA. More global events come from the Chinese GDP figures released Friday July 13th which will have to be seen in the light of other more recent events concerning Trade Wars.
Tuesday July 17th is the RBA Meeting Minutes from the previous meeting, this could well provide us with further insight into their earlier decisions. By detailing Inflation numbers, Consumer Price Index data on Wednesday July 25th will provide further insight into the Australian economy.
GBPAUD rates have been fairly range bound in June with little movement outside of the ranges in the mid to high 1.70’s. I do feel the fundamentals will continue to favour the Pound over the Australian Dollar, we could easily see a move back above 1.80 in July. Particularly if the Trade Wars situation escalates and investors believe the Bank of England will raise interest rates before the RBA.
The expectations are for the Pound to see little major movement with no interest rate decision until August. Whilst investors will be looking for clues from the economic data released to determine just what is happening, we will most likely begin to start hovering above and below the 1.80 mark. Of course, any big shifts in global sentiments towards the Trade Wars and also the outlook on interest rates for either the RBA or the Bank of England could see some unexpected swings outside of these levels.