EU Summit Main Focus For Market

The EU leaders’ summit continues for a second day. A review of Brexit negotiations among the EU-27 (minus the UK) is expected to take place today amid limited progress on the Irish border issue in recent months. The UK’s proposed solutions – a ‘customs partnership’ which involves collecting tariffs on behalf of the EU or ‘max fac’ which uses technology rather than customs checks – have so far been given short shrift by the EU. The EU is expected to ask for further clarity on the UK’s position (the Cabinet is due to hammer out a position on the UK’s post-Brexit arrangement at Chequers next week) and to call for preparations to be stepped up for the possibility of a ‘no deal’ scenario.

The EU migrant agreement gave the Euro a boost earlier this morning. Although some of the details were vague, the focus on EU-wide solutions has created a sense of unity. The euro jumped up through $1.16, while the pound fell below €1.13 but moved back above $1.31. Looking ahead, Brexit uncertainties notwithstanding, an upward revision to UK Q1 GDP would raise the risk of an August rate increase and provide support for the pound.

Looking ahead to next week, the GBP exchange rates will be affected by a number of UK PMI readings out on the 2nd, 3rd and 4th of July. The PMI’s readings are a measurement of economic activity, respectively covering the manufacturing, construction and services sectors, are all predicted to show a slowdown during June. None of the readings are expected to show an actual contraction in sector activity, but there could still be Sterling losses if the figures show a substantial decline. The services reading is the most important of the three, as the sector as a whole is the largest single contributor to UK economic growth. It includes key areas such as tourism, financial services and retail sales; a slowdown in June when tourism should be soaring would be a bad start to the summer season. 

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