British pound drops to new lows after UK economy contracted in Q2
Scott Petruska, CFA | August 9, 2019
Financial markets have seen great volatility this week, and today is no exception. The UK pound plunged to new multiyear lows after data showed that the UK economy unexpectedly contracted in the second quarter and PM Boris Johnson’s announced plans for a general election shortly after the October 31 Brexit deadline. The PBOC set the USD/CNY fixing slightly higher. Global stocks are soft.
August 9, 2019
EUR/USD 1.1194 GBP/USD 1.2082 USD/CAD 1.3208 AUD/USD 0.6813 USD/JPY 105.82 USD/CNH 7.0809 USD/ILS 3.4726 USD/MXN 19.4132 USD/CHF 0.9734 USD/INR 70.7925
The dollar had a mixed performance overnight, making gains against the UK pound, Canadian dollar and Chinese yuan, and losing ground against the euro, Japanese yen and Australian dollar. Core US PPI in July surprised by posting its first fall in two years. Excluding food and energy, producer prices fell 0.1% from June compared to expectations for a 0.1% gain. The 2.1% annual increase was the slowest in two years.GBP
The UK pound dropped to its lowest level in two years following news that the UK economy unexpectedly contracted in Q2 - fueling fears that the economy is heading for its first recession in a decade. New Prime Minister Boris Johnson continues to pledge that Britain will leave the EU on October 31, and stated today that he wants to hold a general election shortly after that date should a no-confidence vote succeed.EUR
Italy’s coalition government looks destined to fall. Deputy PM Salvani has called for a snap election, disparaging his ruling partners in government and saying that the coalition no longer holds a majority in parliament. Italian bonds were sold, pushing yields higher by 14 bps to 1.68%. The euro initially dropped on the news, but quickly rallied and ended up slightly in the European trading session.CAD
The Canadian dollar fell against the dollar despite higher oil prices. It weakened after release of July labor data which showed a loss of 24,200 jobs, raising the unemployment rate to 5.7%.ASIA/PACIFIC
The PBOC set the USD/CNY reference rate at 7.0136, slightly higher for a second day in a row. The current spot rate is trading near 7.0575, or about 0.6% weaker than the fixing, but well within the 2% daily trading band.
The Australian dollar edged back over $0.6800, well above Tuesday’s 10-year low at $0.6756.The Reserve Bank of Australian’s Governor Philip Lowe spoke about pursuing wide-ranging productivity reforms. He put pressure on the government to invest more in quality infrastructure and to enact reforms which will protect their country from political shocks overseas.