GBP

The pound has been sold in early trading after Reuters reported that the government will present legislation to Parliament on Monday to unilaterally revise the post-Brexit trade arrangements for Northern Ireland. Foreign Secretary Liz Truss is expected to table the controversial legislation after a Cabinet committee signed it off on Wednesday, despite reports of concerns from Chancellor Rishi Sunak and Senior Minister Michael Gove. The European Union has made clear that such a move would represent a breach of international law and would prompt retaliatory action from the bloc. Sterling’s fortunes against the dollar on the day, will largely be dictated by US inflation figures released this afternoon.

EUR

The euro remains relatively steady against the dollar after wild fluctuations yesterday following the European Central Bank’s monetary policy meeting and President Christine Lagarde’s press conference. As expected, the central bank announced the end of its asset purchasing programme and signalled the beginning of a rate hike cycle with a 25-basis point rise in July, followed by another hike in September. These moves were largely supportive for the single currency, however, the euro’s fortunes turned when Lagarde fielded questions from journalists. Of major concern to markets was Lagarde’s confirmation to the press that the ECB does not yet have a concrete “anti-fragmentation” tool to hand, which traders believe is required to ensure fractures do not appear in the eurozone economy once interest rates start to rise, pushing up the cost of borrowing for all the bloc’s countries via higher yields on treasury bonds. Following the press conference, the euro was heavily sold against the dollar losing over a cent by the close of the day.

USD

The dollar has found support in early trading ahead of this afternoon’s inflation data which should guide the Federal Reserve Bank’s monetary policy tightening path. Next week, financial markets expect the central bank to announce the second of three consecutive 50 basis point hikes, but any signs that inflation is cooling could give the Fed some room to raise rates less aggressively later in the year, as it tries to rein in inflation without tipping the economy into recession. The greenback also found some safe haven demand overnight when Shanghai announced it is once again battling a covid resurgence with many areas back under lockdown.

Economic Calendar

13:30 USD Consumer Price Index (MoM)(May)
13:30 USD Consumer Price Index (YoY)((May)
15:00 USD Michigan Consumer Sentiment Index (Jul)
19:00 USD Monthly Budget Statement