Article Highlights

  • U.S. flash services PMI unchanged at 51.3 vs. 52.0 forecast
  • U.S. goods trade deficit widened to $60.6 billion
  • Draghi and Yellen pulled out of ECB Summit
  • S&P lowered UK sovereign bond rating from AAA to AA
  • Fitch downgraded UK government and BOE
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Risk-off vibes were still present in the financial markets as traders continued to react to the post-Brexit fallout.

Major Events:

UK credit rating downgrades – As expected, credit rating agencies decided to dole out downgrades on UK bonds, citing the negative repercussions of the Brexit on trade, investment, public finances, and political continuity.

S&P lowered its rating on UK sovereign bonds from AAA to AA and cut its growth forecasts for this year all the way up to 2029. The agency even noted that wider constitutional issues could emerge from the resounding “stay” votes in Scotland and Northern Ireland.

Meanwhile, Fitch also made credit rating downgrades of their own. Both short-term and medium-term growth are expected to slow down, lowering their growth forecasts for this year and the next couple of years. Fitch even gave a downgrade for the Bank of England, explaining that the central bank’s long-term issuer default rating (IDR) is directly tied to that of the UK government.

Downbeat U.S. economic data – Medium-tier data from the U.S. economy came in weaker than expected, contributing to the bout of risk aversion already affecting price action.

The flash services PMI didn’t budge from its previous 51.3 reading instead of improving to the projected 52.0 figure to indicate faster industry growth. The U.S. goods trade deficit widened from $57.5 billion to $60.6 billion, reflecting weaker demand for exports and likely contributing to a larger trade balance.

Major Currency Movers:

GBP – Pound pairs resumed their slide as credit rating downgrades were dished out and markets found very little assurance from officials’ remarks.

GBP/USD fell below Friday’s low of 1.3218 to a new low of 1.3117, GBP/JPY broke below the 135.00 handle and is trading at 134.52, EUR/GBP climbed back up to the .8300 area, GBP/AUD slumped to a low of 1.7749, and GBP/NZD stayed below the 1.9000 handle.

See also:

Asian Session Recap

London Session Recap

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