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Sterling has fallen to its lowest level in more than two years against the dollar and the euro after Boris Johnson declared that he would not meet with EU Brexit negotiators until the EU committed to scrapping the Irish backstop. The Prime Minister later emphasised that he was willing to go the “extra thousand miles” to secure a new deal, but that did not stop sterling plummeting below $1.22.
The FTSE 100, on the other hand, rose by almost 2% yesterday. As a large proportion of the index’s revenues are earned overseas, it tends to have an inverse relationship with sterling’s fortunes. Additionally, reports of more than one multi-billion-pound deals fuelled investor appetite. The index closed at its highest level since last August.
UK retailers, however, have suffered their third successive month of declining sales in July, according to the Confederation of British Industry. It adds up to the longest period of falling sales since 2011. Department stores and clothes shops were the hardest hit.
Talks between the US and China are due to resume today in Shanghai, but optimism has been checked by recent sparring and it is thought that there is little chance of a meaningful breakthrough on any significant topics.
The Federal Reserve is widely expected to cut interest rates on Wednesday, which would be the first reduction since 2008. Assuming the central bank lives up to expectations, market focus will be on whether signals point to more policy easing this year, with the market currently pricing in another cut at least.
Meanwhile, the Bank of Japan kept central interest rates unchanged and implied that monetary stimulus was possible, a possible attempt to prevent the yen strengthening too much in the face of a US rate cut. Japan’s central bank’s outlook report lowered forecasts for both core inflation and GDP, which are now 1.0% and 0.7% respectively for 2019.
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