The pound began with a spring in its step as it jumped higher against a weakening dollar on Monday, although political uncertainty and persistent recession fears capped its surge. The UK currency advanced into the 1.20 range, its highest level over a week.
The five remaining contenders in the Conservative leadership race locked horns over tax cuts in a second televised debate on Sunday. Prime minister Boris Johnson steps down following a series of controversies with no clear favourite to succeed. The race to be the next leader remains wide open. The resulting political uncertainty weighs heavily on the pound.
Asking prices for British homes in July were 9.3% higher than 12 months earlier, down from a 9.7% rise the previous month. Sharply rising mortgage costs for first-time buyers contributed to these figures, according to Rightmove. Further signs that Britain’s housing market is cooling, as the cost of living squeeze tightens and the Bank of England raises borrowing costs.
Trimmed Fed rate hike bets knock dollar
The dollar retreated on Monday as markets pared some of their bets on Federal Reserve rate rises after two Federal Reserve officials signalled a second consecutive 75 basis points (bps) hike at their July policy meeting.
Fed Governor Christopher Waller and St Louis Fed Governor James Bullard said they preferred another interest rate increase of this size versus the supersized 100 bps move. Their comments boosted risk sentiment in markets, denting the safe-haven dollar’s appeal – a mood that filtered into the new week.
Looking ahead
A data light day on both sides of the Atlantic brings Tuesday’s economic indicators into even sharper focus.
The UK jobs market will be under the microscope when the ILO unemployment rate hits the headlines. Britain’s jobless rate – which edged up to 3.8% in the three months to April but continues to test multi-decade lows – is forecast to have held firm in the three months to May. Meanwhile, the claimant count – the number of people claiming jobless benefits in the UK –indicates a rise in June.
US housing starts, and building permits for June will release on Tuesday. Both declined in May, though they remained at high levels. The consensus is for housing starts to increase and building permits to decrease.
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