09/07/2018 - May Struggles To Unite Government

GBP

Sterling rose to an eight-day high on Friday as traders awaited the outcome of last-ditch efforts by Prime Minister Theresa May to unite her government over plans for Britain’s future outside the European Union.

The meeting at Chequers, May’s country residence, which is set to run late into the evening, will see her appeal to ministers to put Brexit divisions behind them and move forward by backing her white paper policy document. The pound’s rise on Friday was largely down to dollar weakness following the release of U.S. employment data.

The perceived lack of progress in talks with Brussels over Britain’s exit from the EU in March 2019 has weighed on the pound this year. Combined with signs of economic weakness, it has pushed the currency to near seven-month lows.

After many months of rumours that he would pull the plug, Brexit Secretary David Davis, who has been leading UK negotiations to leave the EU, has resigned from government over the weekend.

In his resignation letter, Mr Davis criticised the Theresa May's Brexit plan saying it would leave Parliament with "at best a weak negotiating position". In her reply, Mrs May said she did not agree but thanked him for his work.

USD

The dollar hit three-week lows on Friday after data showed the U.S. economy created more jobs than expected in June, but a closely-watched inflation gauge - wage growth - rose less than forecast and the unemployment rate increased.

The greenback had already weakened earlier on Friday as the United States and China imposed tariffs on each other’s imports, but the currency’s fall was muted as investors waited for the jobs report.

U.S. nonfarm payrolls advanced by 213,000 jobs last month, the Labor Department said. Data for April and May was revised to show 37,000 more jobs created than previously reported. The unemployment rate rose to 4.0 percent from an 18-year low of 3.8 percent in June, while the average hourly earnings rose five cents, or 0.2 percent in June after increasing 0.3 percent in May. Fed funds futures priced in a 77 percent chance of a September rate hike, down from 80 percent before the jobs data.

With U.S. payrolls out of the way, investors focused on the trade conflict between the world’s biggest economic powers as U.S. tariffs on $34 billion worth of Chinese goods came into effect. Investors are anxious to know whether the latest tariffs were a continuation of tit-for-tat measures or an escalation between the two countries which could cause volatility in global financial markets.

Key Announcements

14:00 - EUR: ECB President Draghi Speaks At European Parliament Economic and Monetary Affairs Committee, in Brussels