Pound Recovers On Promise Of US Trade Deal

GBP

The pound recovered slightly from the lows of last week on Tuesday amid promises of a “phenomenal” post-Brexit trade deal between the UK and the U.S. However fears of a no-deal departure from the EU ensured that any gains were limited. U.S. President Trump had spoken of his desire to maintain a strong relationship with the UK and to develop a new and improved trade agreement. However, a pinch of salt is in order as Trump has echoed the same sentiment with plenty of nations during his tenure as President.

The political situation in Britain continued to weigh on sterling, and there are a dozen candidates vying to replace Theresa May. Trump endorsed both Boris Johnson and Jeremy Hunt, both from opposing ends of the no-deal debate. We have seen a run of losses for the pound over the last few weeks, and whilst the depreciation looks set to continue whilst the no-deal scenario looms over, the pace of depreciation will likely slow as the volatility measure of sterling increases. Short positions on the pound are at their highest since March, reflecting overall uncertainty on Britain’s future.

USD

The pound fell to seven-week lows yesterday after the Fed hinted at the possibility of an interest rate cut in the face of rising global trade risks. Fed Chair Powell said that they will respond to trade pressure, and renowned dove James Bullard said in a speech that a rate cut may be needed “soon”. This comes in the face of disrupted global bond and equity markets, which pose a significant risk to U.S. and world economic growth.

This fall was also impacted by reports from the Commerce Department that new orders for the U.S. made goods fell in April and shipments dropped by the most in two years. This weakness in manufacturing will also pose a risk to the broader U.S. economy and will be monitored closely by the Fed.

Key Announcements

15:00- USD: ISM Non - Manufacturing PMI (May) expected to be unchanged at 55.5