The pound fell to a three-week low against the dollar losing around 0.7%, whilst falling around 0.5% against the euro, before making moderate gains after Prime Minister Boris Johnson survived a no-confidence vote on Monday evening. The PM won the vote 211 to 148, but his 59% share of the vote was less than the 63% achieved by his predecessor Theresa May in December 2018 who was replaced seven months later. Although winning the vote is enough to avoid having to resign immediately, the larger than anticipated rebellion within his party leaves him politically wounded and his challenge will be to convince his most senior allies, some of whom would have likely run to replace him if he had been forced out, that he will be able to move on from questions about his leadership.
The euro has started the day under pressure against the dollar amid resurgent greenback demand. The single currency also lost favour when data released this morning showed German factory orders unexpectedly fell in April as harsh lockdowns in China pressured global supply chains, adding to disruptions caused by the Ukraine conflict. Demand plunged 2.7% in March, a third straight fall, whilst economists had predicted a 0.3% rise. Last month, the Bundesbank warned that second quarter output will rise “slightly at best” and industrial production due tomorrow for Europe’s largest economy will be keenly watched by traders.
The dollar started yesterday on the backfoot but strengthened in US trading after a change in market sentiment and ended the day with gains against all its major rivals. The early mood in Asian and European markets was backed by hopes that the global economic growth situation would start to improve after Beijing continued lifting covid restrictions. However, sentiment soon turned negative when the New York market opened and traders sought refuge in the greenback fearing the Federal Reserve Bank will maintain its aggressive monetary policies in the coming months after last week’s upbeat employment report underpinned such speculation. In early trading today, the dollar index is up 0.2%, extending Mondays 0.35% advance. The economic calendar is light today with this afternoon’s Goods and Services Trade balance for April being the only release of any note.
13:30 USD US Goods and Services Trade balance (APR)