Sterling's Drop Paces Dollar Gains

Marc Chandler profile picture
Marc Chandler
15.4K Followers

Summary

  • Sterling is sold to new 11-month lows on risk of no-deal Brexit.
  • Canadian dollar trading a bit heavier amid diplomatic tiff with Saudi Arabia.
  • German manufacturing orders continue to fall but for possibly different reasons.

The US dollar edged higher against most of the major currencies, and emerging market currencies are heavier. Sterling's quarter percent drop makes it the weakest of the majors in slow turnover and it was sufficient to record a new 11-month low.

Sterling failed to get much of a lift from last week's BOE rate hike, which was widely expected. Carney confirmed that a gradual pace of normalization suggests one hike a year may be appropriate. Carney also acknowledged that the risks that Brexit takes place without a deal were too high for comfort, though not the most likely scenario. The UK's International Trade Minister, Fox, took it a step further over the weekend and suggested that such a no-deal Brexit was likely and blamed, of course, the EC's intransigence.

Sterling is testing $1.2950. The next target is near $1.28, which corresponds with a 61.8% retracement of the rally since the flash crash low in October 2016 that Bloomberg puts at $1.1840. The euro, which has its own challenges, is firm against sterling, but below last week's high near GBP0.8935. The GBP0.8960-GBP0.8970 area has turned its back twice in the past six months.

The Italian government fiscal plans, which were such a concern last week, have eased today. Italy's 10-year benchmark yield is off 4.4 bp today, the most in Europe, putting more space between in at the 3.0% threshold. The two-year yield is off nearly seven basis points to slip below 90 bp. There has not been much news to account for the reversal, but the coming clash with the EU may not be for a couple more months.

Meanwhile, the surprise of the day comes from Germany. June factory orders dropped a heady 4%, eight times larger of a decline than the median in the Bloomberg survey forecast, and enough to

This article was written by

Marc Chandler profile picture
15.4K Followers
Marc Chandler has been covering the global capital markets in one fashion or another for 25 years, working at economic consulting firms and global investment banks. A prolific writer and speaker he appears regularly on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. In 2009 Chandler was named a Business Visionary by Forbes. Marc's commentary can be found at his blog (www.marctomarket.com) and twitter www.twitter.com/marcmakingsense

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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