Forex Institutional Research: Commerz Bank FX Daily
Key quotes from the Commerz Bank FX report:
G10 FX Research
GBP: Down to three now. Following the first vote on the leadership of the British Conservative Party (Tories) the majority of MPs supported Theresa May, the current British Home Secretary. She received 165 of 329 votes. The former Defence Secretary Liam Fox, who received the smallest number of votes, as well as State Secretary for Work and Pensions Stephen Crabb, who withdrew his candidature, are no longer in the contest. As a result May has only two competitors left, these are Michael Gove, Secretary of State for Justice and a prominent Brexit supporter, as well as Andrea Leadsom, Secretary of State for Energy, who received the largest number of votes after May (66). On Thursday the MPs will decide for two of the now remaining three candidates who will then face a run-off amongst all party members.
Even if that means that following Prime Minister David Cameron’s resignation the political situation is beginning to be sorted out, the uncertainty about the future of Great Britain for the financial markets has not been reduced very much at all. As Theresa May stands the best chance to become the leader of the Tories and therefore Prime Minister some will continue to question whether we will really see a Brexit. After all May had been in favour of the UK remaining in the EU ahead of the referendum. Since she decided to stand for leadership on the other hand May has signalled that she will take a relatively tough stance in the negotiations with the EU. The continued uncertainty about the future relations between the UK and the EU therefore continue to put pressure on the British economy and therefore on Sterling. This was confirmed by the governor of the Bank of England (BoE) Mark Carney yesterday. The BoE decided to ease the capital requirements for British banks as the uncertainty is likely to lead to a squeeze on lending. Moreover, according to Carney some risks the BoE had seen in case of a Brexit had already manifested. This is likely to include the fact that some British property funds had to suspend trading to prevent further outflow of funds. The majority of market participants are likely to feel confirmed that the BoE will now also take monetary policy action, possibly even as early as next week. So for the time being there is no end in sight to the Sterling weakness.
USD: Hardly anybody is likely to hope for any strong momentum as a result of the minutes of the FOMC meeting. First of all the meeting was held prior to the Brexit referendum. Moreover the FOMC had published new projections just after the meeting and Fed chair Janet Yellen had answered important questions during the press conference. That does not mean that the minutes will be completely irrelevant though. It would be interesting to find out how many members share Yellen’s cautious view. The Fed chair has referred to countless risks for the economic and inflation outlook. The press statement however illustrated that the FOMC is quite happy with economic developments so far – with the exception of the recently very weak labour market report – and as a result remains optimistic for the future. That means the minutes may support USD short term. As further Fed rate hikes this year have been priced out anyway there can only be USD-positive surprises after all…
These notes are intended for information purposes only and are a small sample of the institutional content we post daily within our Trading Hub including full research notes, flow reports and trade desk commentary with trader views