Sterling continued to fall on Tuesday as the Government insists that the UK is prepared to leave the EU without a deal. Sterling has fell 4% since the end of June against the US dollar, leaving it on track for its worst month since October 2016. Furthermore the Pound has declined 2.5% over the past four trading days against the Euro and other major currency pairs. Fears of a no-deal Brexit becoming a reality has caused sterling to weaken by a significant amount along with the selling of the pound against various currencies.
Furthermore Boris Johnson has clashed with Leo Varadkar the Irish Prime Minster over the Irish backstop problem in their first phone call. Varadkar said the EU is united in the view that the backstop cannot be scrapped and the withdrawal agreement will not be reopened. Johnson in response told Varadkar that the UK would never put physical checks or infrastructure at the border with Northern Ireland after Brexit but demanded the backstop to be scrapped.
Johnson has made it clear that the UK will be leaving the EU on 31st October regardless of whether a deal has been struck and that any new agreement must be ‘one that abolishes the backstop’. However Varadkar has ruled out a deal without the backstop, which Eurosceptic Tory MPs refused to vote for because they argued it could indefinitely trap the UK in a customs union after the end of the transitional period. Lastly Johnson has not stated his proposal for replacing the backstop by some senior Tory MPs believe the solution lies in ‘alternative arrangements’.
Germany’s inflation rate weakened more than expected, adding to evidence that the European Central Bank may have to step up support for the euro area. Inflation in Europe’s largest economy was 1.1% in July, below economists’ estimates. The figures come one day before a report on inflation in the 19-nation euro area, for which economists anticipate a reading of 1.1% which is well below the ECB’s target. Most economists are now expecting the ECB to follow up with an interest rate cut in September to combat poor economic growth and inflation.
President Donald Trump kept up the pressure on the Federal Reserve, calling for the central bank to cut interest rate by a substantial amount. Reports are suggesting that the FED are looking to cut interest rates by 25 basis points but Trump wants to see a ‘larger cut’ stating that he would like to see quantitate tightening immediately stopped. Despite his disapproval of the Fed’s actions, Trump said he thinks the economy is strong enough to withstand tighter monetary policy.
10:00 – EUR: CPI Flash Estimate y/y – Unchanged at 1.2%
10:00 – EUR: Core CPI Flash Estimate y/y – Forecast at 1% from previous 0.8%
19:00 – USD: Federal Funds Rate
19:30 – USD: FOMC Press Conference