GBP: Near term balance of risks points to weaker sterling
Fundamental bias: Mildly bearish
The next few weeks could be a vulnerable period for cable. First, the near-term EUR/USD upside potential has faded and short-term downside risks remain following the hawkish June FOMC meeting. Second, concerns about the spreading Delta variant should prevent any further hawkish repricing of the market outlook for the Bank of England. Third, the political risk factor is back, with growing signs that the UK government may want to unilaterally extend a grace period for processed meat exports to Northern Ireland that expires at the end of June. This would risk a tariff response from the EU.
It is a busy week on the domestic data front. We don’t expect much surprise from the BoE meeting (Thursday) and the Bank is unlikely to say anything new after signalling it would not speculate on the timing of a first interest rate move. Also note that no new forecasts will be present in the June BoE meeting. As for the June PMIs (Wednesday), we may see a slight increase in the services index again, though the manufacturing PMIs may reverse lower modestly after the meaningful rise last month.
The next few weeks could be a vulnerable period for cable. First, the near-term EUR/USD upside potential has faded and short-term downside risks remain following the hawkish June FOMC meeting. Second, concerns about the spreading Delta variant should prevent any further hawkish repricing of the market outlook for the Bank of England. Third, the political risk factor is back, with growing signs that the UK government may want to unilaterally extend a grace period for processed meat exports to Northern Ireland that expires at the end of June. This would risk a tariff response from the EU.
It is a busy week on the domestic data front. We don’t expect much surprise from the BoE meeting (Thursday) and the Bank is unlikely to say anything new after signalling it would not speculate on the timing of a first interest rate move. Also note that no new forecasts will be present in the June BoE meeting. As for the June PMIs (Wednesday), we may see a slight increase in the services index again, though the manufacturing PMIs may reverse lower modestly after the meaningful rise last month.