• The British pound on Monday recorded its largest daily drop against the U.S. dollar in 3-1/2 weeks after two eurosceptic ministers announced their resignation from UK Prime Minister Theresa May’s cabinet, leaving the British leader’s Brexit plans in chaos.
The pound fell 1.3 percent against the dollar to a daily low of $1.319. In mid-afternoon trade, the pound recovered some of those losses, last at $1.326, following the news that UK Conservative Party Chairman Brandon Lewis said he did not expect a vote of confidence against the prime minister.
On the back of sterling’s slide, the dollar index rose 0.5 percent against a basket of six major currencies to a daily high of 94.206. Against the euro, the dollar strengthened to $1.173. Analysts attributed the dollar rally to the British currency’s move.
The yuan rose more than half a percent in offshore markets to 6.614 against the dollar, putting it on course for its biggest one-day rise in more than three months and further away from June’s lows - its biggest-ever monthly decline.
• President Draghi's speech
Below are the key quotes from the introductory statement by Mario Draghi, President of the ECB, at the ECON committee of the European Parliament, Brussels, 9 July2018.
- The labour market has improved notably over recent years.
- Our confidence in the inflation path is also rising.
- The projected path of inflation appears to be self-sustained, i.e. resilient to a gradual ending of net asset purchases.
- The expected end of the net asset purchases in December 2018 does not mean that our monetary policy ceases to be expansionary.
- We estimate that the measures we have taken since mid-2014 will have an overall cumulative impact of around 1.9 percentage points on both euro area real GDP growth and inflation for the period between 2016 and 2020.
- Downside risks to the outlook mainly relate to the threat of increased protectionism.
• The economic boost from U.S. President Donald Trump’s $1.5 trillion tax cut will probably fall well short of most analysts’ “overly optimistic” expectations, two economists wrote Monday in the San Francisco Federal Reserve Bank’s latest Economic Letter.
Instead of the boost to GDP growth this year of about 1.3 percentage points estimated by the Congressional Budget Office and other forecasters, they wrote, “the true boost is more likely to be less than 1 percentage point,” with some studies pointing to as little as zero.
• President Donald Trump suggested on Monday that China might be seeking to derail U.S. efforts aimed at denuclearizing North Korea, but said he was confident that North Korean leader Kim Jong Un would uphold a pact the two agreed on last month.
• U.S. President Donald Trump berated fellow NATO members on Monday for not contributing enough to the alliance while maintaining a trade surplus with the United States, keeping up a recent drumbeat of criticism before meeting European leaders this week in Brussels.
On the eve of his departure for the NATO summit being held on Wednesday and Thursday, Trump linked two well-worn gripes: funding for the North Atlantic Treaty Organization and other countries’ trade practices.
• Prime Minister Theresa May’s foreign minister and Brexit negotiator quit on Monday in protest at her plans to keep close trade ties with the European Union after Britain leaves the bloc, stirring rebellion in her party’s ranks.
Foreign Secretary Boris Johnson, the face of Brexit for many, resigned just hours after Brexit minister David Davis, emboldening some in her Conservative Party to mull a plot to unseat her less than nine months before Britain exits in March.
The two departures seemed to shatter May’s own proclamation of cabinet unity last Friday, when she said she believed she had, after two years of wrangling, secured agreement on Britain’s biggest foreign and trading policy shift in almost half a century.
• Britain's ramshackle exit from the European Union, with two ministers quitting the government on Monday, could damage economic growth in the euro zone, European Central Bank policymaker Ewald Nowotny said.
"For the eurozone, the Brexit constellation is something we look at," Nowotny told an event in Zurich just before news of Johnson's exit. "It is mainly a risk for the UK but it also poses risks and uncertainties for the eurozone."
• British Prime Minister Theresa May said Monday that preparations for a "no deal" Brexit would be stepped up, and that Parliament should prepare for a number of different outcomes.
The comments from the U.K. leader followed the abrupt resignation Monday of a key member of May's Cabinet, Foreign Secretary Boris Johnson. David Davis, the minister directly charged with handling Britain's exit from the European Union, resigned hours before.
• Oil prices gained on Monday, with U.S. crude ending a choppy session higher on expectations for a Canadian production outage lasting until September, while global benchmark Brent gained on looming sanctions on Iran and falling output in Libya.
U.S. light crude futures gained 5 cents to settle at $73.85 a barrel. Brent jumped 96 cents at $78.07.
• The president of OPEC on Monday defended the oil producer group against U.S. President Donald Trump’s recent demands for higher oil output, saying OPEC does not shoulder the blame.
Trump has accused the Organization of the Petroleum Exporting Countries in recent weeks of driving gasoline prices higher and urged the group to do more.
Reference: Reuters, Times of Malta, FXStreet
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