Markets considered the risks of an interest rate cut had increased, Sterling came under fresh selling pressure.

Global bond yields continued to decline with US yields at 33-month lows amid growth doubts and dovish central bank rhetoric.

The dollar was unable to make headway given lower yields and expectations of a July Fed rate cut with caution ahead of key jobs data also in evidence.

The dollar was unable to gain any significant traction during the day, although losses were also limited given expectations of dovish policies by other major central banks and EUR/USD settled just below 1.1300.

Sterling was undermined by poor construction data and expectations of a more dovish Bank of England stance following BoE Governor Carney’s comments.

The UK PMI construction index declined sharply to 43.1 for June from 48.6 the previous month. This was well below consensus forecasts and the weakest reading since April 2009 as activity declined in all three categories. Overall sentiment remained weak as political uncertainty sapped confidence, but supply chain pressures continued. The data reinforced near-term concerns over the outlook and Sterling dipped lower before attempting a tentative recovery.

Bank of England Governor Carney stated a tight UK labour market and inflation at target argued for a medium-term focus on inflation dynamics if there was greater clarity on Brexit. He also stated, however, that the risks of a global trade war and ‘no-deal’ Brexit had increased for now and that the central bank would make a detailed assessment of the outlook in the August inflation report.

Markets considered that the risks of an interest rate cut had increased, and Sterling came under fresh selling pressure with a GBP/USD dip to 9-day lows below 1.2600 while GBP/EUR fell to 1.1120 and Sterling remained on the defensive on Wednesday.

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