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Chart of the Day: GBPUSD

It’s tough to go past the GBPUSD or one of the GBP crosses for Chart of the Day, given GBPUSD is now trading just above the 1.24 level — the lowest levels since April 2017. We can also see that over the past five days, or even one month, that the GBP is by far the weakest currency in G10 FX. This has the pound singled out as the momentum vehicle for hedge funds.

Chart of the Day - July 17, 2019 - GBPUSD daily

On the USD side, we saw US retail sales easily beating expectations, with the “control group” element (the goods that feed directly into the Q2 GDP calculation) rising 0.7%, versus expectations of 0.3%. Consider the market is pricing a 29% chance of a 50bp cut in the 31 July FOMC meeting (4 am AEST on 1 Aug). So, given the recent stronger-than-forecast US payrolls, CPI, and the rise in inflation expectations in the last week, it favours a 25bp cut. For the USD to materially weaken, at least in the near term, we need to see a 50bp reduction. It also wouldn’t hurt USD longs to see the rest of the world looking relatively better.

On the GBP side, we saw weekly earnings (ex-bonus) coming in at 3.6% YoY, easily exceeding productivity growth, which historically breeds inflation. This is a good pre-cursor ahead of today's UK CPI (consensus 2% YoY) happening 18:30 AEST. However, for the GBP it’s all about Brexit, with reports that Boris Johnson — the likely incoming Tory leader — will potentially suspend parliament for one to two weeks ahead of the Queen's speech early November. If this plays out, there’ll be legal challenges. But by suspending parliament, it makes a no-deal Brexit unavoidable on 31 Oct. One also suspects that if it’s utilised, then a vote of no confidence will be swiftly pulled on Boris Johnson. A general election beckons anyhow, and this is keeping GBP buyers away.

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