Good morning,
The week is set to see a fair bit of volatility across all currency pairs but with GBP most definitely in the spotlight.
Super Thursday to add heat and a little light
This Thursday heralds another Super Thursday of a Bank of England rate decision, the minutes of said meeting and a Quarterly Inflation Report too; it’s a quarterly Glastonbury for people like me. In essence the main argument has shifted some in the past few weeks and while markets are pricing in a one in twenty chance of a rate hike the key things to watch will not be what happens on Thursday but how voting patterns set the table for the next few meetings.
As it stands there are only 8 members of the Monetary Policy Committee who will vote this month with new appointee David Ramsden joining next month. Both members Saunders and McCafferty are expected to vote for a hike but the impetus for sterling will come should Andy Haldane, the Bank’s Chief Economist follow suit. While that would not be enough to change policy now, given the likely evolution of the inflation picture higher in the UK, a November hike, barring a severe dip in growth, would very much be on the cards.
We still can’t see it and more on this and the prospects for the pound will be published in this afternoon’s Sterling Update.
Trump turning dollar into a tramp
The dollar remains under pressure from political matters and an increasing market belief that the Fed has shot its bolt on rate rises already. The firing of White House Chief of Staff Priebus and another North Korean missile test has only served to draw additional focus on the Oval Office’s ability to handle current events. The dollar slid on Friday following a slightly weaker than expected GDP number that, while higher than the figure in Q1, was no way high enough to make up for the lost ground.
As we posited last week, there are three pillars of currency strength at the moment; politics, central bank policy and economic data and, for the moment at least, the USD cannot count on any of these for support. This week’s payrolls number – Friday at 13.30 BST – will need a big improvement in wage numbers to bring the USD higher and the sector by sector look at the manufacturing and services industries within the US economy should continue to show damp inflation prospects, limiting USD appreciation.
Will the euro put in a top soon?
Euro continues to run hot, aided ably by weakness elsewhere. Our doubts of sustainable appreciation from here will be tested by this week’s run of PMI data that should continue to show an economy that is definitely repairing itself but, as with all developed economies at the moment, unable to sustainably create inflation. Support of the euro at current levels from the European Central Bank remains unlikely and we would not be surprised if price action in the next few weeks puts a high for the year in for the euro against the US dollar.
Italian inflation due at 10am will be the highlight of the day’s data calendar.
China moves still very quiet
Overnight moves by the People’s Bank of China to add liquidity to lending markets has generated little volatility over the weekend. The CNY market is very much in the summer doldrums and should remain so until September.
Have a great day