The Pound slumped to a two-year low yesterday, 23 July, after Boris Johnson was announced the winner of the Conservative Party leadership contest, replacing Theresa May as new British prime minister and raising the spectre of a no-deal Brexit.
Sterling was on track for its fourth straight day of losses, edging closer to $1.2382. The UK currency’s losses were compounded by a rise in US Treasury yields as investor risk aversion waned following some progress in US-Chinese trade negotiations.
US Trade Representative Robert Lighthizer and senior US officials will travel to Shanghai on Monday, 29 July for face-to-face meetings with Chinese officials, according to Bloomberg reports.
The Dollar also firmed yesterday after Washington reached a deal to lift government borrowing limits. Analysts reckon increased US borrowing would tighten the supply of money in the country’s banking system and in turn support the greenback. The Dollar Index is up to a five-week high of 97.755.
Market participants now turn their attention to the European Central Bank (ECB) in anticipation of its policy meeting tomorrow, 25 July. Meanwhile, the Euro has slipped to a two-month low as markets wait to gauge the ECB’s stance amid bubbling expectations that it could eventually lower interest rates and join the global easing trend.
The single currency was 0.5 per cent lower at $1.1145 after touching $1.1143, its lowest since 31 May. It already lost more than 0.5 per cent the previous session and shed nearly 0.7 per cent so far this week.
The Euro’s decline has quickened ahead of the meeting tomorrow as markets have pared their bets the ECB would cut rates by 10 basis points, leaning instead towards dovish guidance and paving the way for easing in September. The key point is not necessarily whether the ECB eases this week or not, but what kind of language President Mario Draghi employs regarding policy direction.
Markets ponder need for US rate cut
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