Every day is seemingly bringing fresh lows to sterling, with no definitive catalyst apart from the increased risk of a general election or a no-deal exit, especially with Boris Johnson and deputy Gove sending markets mixed messages. Following comments on no-deal being a million-to-one chance from Boris Johnson yesterday, Michael Gove confirmed that a no-deal exit has become the government’s working assumption. The crossing of wires pushed the pound to fresh 2-year lows against the dollar. Monday saw sterling’s 14th largest one-day decline against the dollar since the Brexit referendum in 2016, while the pound also suffering its 9th biggest fall against the euro. Anxiety over the Brexit process is shaking out any bulls left in the market for the pound as support levels come and go en route to the round 1.20 level. The best Brexit bellwether, that is GBPUSD, is sounding the warning alarm and isn’t showing any signs of appeasing in the short-run. The cost of protecting GBPUSD downside for 3-months is etching up to levels not seen since the March Brexit deadline was extended, but worryingly the pound sits a full 8-points lower than it did back in Q1. With little pencilled into the data calendar today, momentum is driving sterling’s price action as domestic politics continues its stranglehold on the currency before the Bank of England meeting on Thursday. Today, Johnson will travel to Wales as he continues his trip around the devolved nations. The new PM will be hoping for a warmer welcome in Wales after crowds booed him in Scotland, causing him to sneak out of the back door on his way out.


All the Brexit uncertainty leaves the euro unhampered for now as the single currency traded flat against USD yesterday, while it did make strong advances against the troubled sterling. The GBPEUR cross eventually reached the lowest point in almost two years, while it eyes decade lows if the bottoms of September 2017 are broken. This morning another alarming data point came out as the Flash French Q2 Gross Domestic Product reading undershot the 0.3% expectations at 0.2%. This is another bummer for the Eurozone economy because the ruling narrative is that France will be less affected by the global slowdown in manufacturing because as its manufacturing industry is more focused on the homeland. However, ebbing consumer demand weighed on Q2’s reading, despite the Macron government’s tax cuts in response to the yellow vest protests. All throughout the morning, German Bundesländer will release their Flash July Consumer Price Index data, culminating into a nationwide reading at 12:00 BST.


The dollar’s hot streak continues this morning as the rally enters into its eight successive trading day. Due to the DXY weightings, the broad dollar index sat in the green yesterday despite taking on water from the euro, the Canadian dollar, and the Swiss franc predominantly due to sterling’s extensive rout. Today, the greenback’s strength has found a wider pool of strength, with the havens and kiwi dollar the only standout G10 performers. As Fedspeak remains muted prior to tomorrow’s pivotal FOMC meeting, market’s will focus on the release of June’s PCE inflation index at 13:30 BST. Inflationary pressures have been a serious concern for the Fed and arguably allowed the scope for an insurance rate cut due to allowing room in the inflationary outlook to stimulate growth. Headline inflation is expected to rise to 1.7% YoY this afternoon, while the core measure is expected to remain unchanged at 1.5%.


The loonie didn’t stand out in the Commonwealth section of the G10 currency board yesterday, or in the G10 currency board as a whole for that matter. We will still have to wait for Wednesday’s Gross Domestic Product data and Friday’s Trade Balance data to break the dry spell on Canadian data that has been with us since the third week of July. However, with the US and China having their first trade talks since the negotiations broke down in May today, we may see shifts in trade sentiments and oil prices. These can then have their effects felt on the exchange rate of the loonie, which can send the currency back closer to the 8-month lows on USDCAD we have seen mid-July.