Financial market research and analysis

The pound was seen consolidating losses overnight after Brexit chaos in the Conservative Party sent sterling on a roller coaster ride in the previous session. Fears that Theresa May could be defeated by pro-Remain conservatives, days after she accepted Brexiters amendments sent the pound 1.5% lower to $1.3079. Her then narrow escape from a humiliating defeat on the customs bill lifted the pound to $1.3110 where it remained in the Asian session.

After Theresa May narrowly survived a rebellion from the pro Remain Tory rebels, the next obstacle for the pound will be inflation figures this morning. CPI data is expected to show that inflation is on the rise once again in June, increasing to 2.6% year on year, up from 2.4% in May. The anticipated gains in inflation are owing to the increase in energy prices, as oil climbed to a 3 ½ year high, in addition to the declining pound, sterling has fallen close to 9% since its April high of $1.4379. Core inflation is expected to remain constant at 2.1% year on year in June.

The rebounding inflation figure could boost optimism for a BoE rate hike when they meet in two weeks’ time following Tuesday’s less encouraging slip in average earnings. But even if the data is pointing to conditions falling into place for a rate rise in August, the political landscape could be a long way from being suitable for hiking rates.

Can Theresa May make it to the summer recess?

The summer break begins in 5 days, so pound traders will be hoping that Theresa May is able to ride out the growing political storm until then. For the pound, it is preferable to be dealing with Theresa May, a known risk, than pass the keys to 10 Downing Street to a potential hard-line Brexiteer or a Socialist Labour leader. Should May not make it to next Tuesday as Prime Minister, then the chances of the BoE raising rates will be slashed. On the other hand, should the PM survive the increasingly severe fraction in her party to arrive at the summer recess still as leader, the BoE could be more encouraged to hike.

Will Fed Chair Powell Boost the dollar again?

In the previous session, the dollar rallied, thanks to Fed Powell’s upbeat assessment of the US economy which worked against the pound. Today Jay Powell will continue his testimony, this time before the House panel. Another bullish update with Powell once again talking up the strength of the US economy could see the dollar extend its gains from Tuesday’s session.

Fed Chair Powell’s confident remarks over the health of the US economy lifted Wall Street to a positive close, with the Nasdaq even booking a fresh record high 24 hours after the Netflix disappointment. An upbeat close in the US lifted stocks in the Asian session and points to a stronger start to Europe on the open.

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