Good morning,

USD: It didn’t take long

As we said yesterday, while the data from Friday’s jobs report may have allowed the US dollar to feel the sun on its face for a few hours, other forces were acting against it. While politics may be quiet at the moment with Trump on a golfing holiday, the Federal Reserve snuck in last night to pull the greenback lower.

While these two members of the Federal Reserve are seen as two of the most dovish – preferring lower interest rates – members of Federal Open Markets Committee that sets rates, comments suggesting that recent weakness in inflation figures will have to call into question just how sustainable the path towards the Fed’s inflation target of 2% really is.

Swaps markets currently see a 6% chance of a hike at its meeting on Sept. 19-20 and roughly 40 percent of a move by the December FOMC meeting.

While we think that the Federal Reserve will begin reducing its balance sheet in September, there is no reason to suggest that this will be dollar positive and we are left thinking that the recovery of the USD needs much stronger foundations before progressing.

ZAR: Zuma vote due in secret

The South African National Assembly will hold a vote of no confidence in President Jacob Zuma today. Confirmation that a vote is due to take place was enough to boost the ZAR into being the best performing major currency yesterday but a vote to evict the leader could send the currency flying. If the vote passes we see no reason why we could not see a 1.5-3.0% move for the rand. Similarly should he hold on – and he does have more lives than the proverbial cat – then a run towards 13.40 would likely be seen in USDZAR and GBPZAR could pick up to 17.40.

The vote begins at 1pm BST.

GBP: Waiting on Thursday

Both UK industrial and construction production numbers are due Thursday morning alongside our latest readout of the UK’s trade balance which we believe has reacted barely to the devaluation of the pound since last June.

The Bank of England is quiet this week and with most politicians on holiday we think Westminster and Brexit news will remain so too. It is therefore to outside factors – US inflation on Friday – that will be the main driver of markets.

Have a great day

Jeremy Cook, Chief Economist