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Can Carney reignite rate hike hopes?

Can Carney reignite rate hike hopes?

GBP
Services PMIs for June strengthened to an eight-month high of 55.1, beating consensus forecasts of 54.0. New business strengthened at the fastest pace in over a year and order backlogs increased at the fastest pace for close to three years. According to IHS Markit, Q2 GDP growth is likely to match Bank of England forecasts of 0.4%. The PMI data should underpin the case for an August interest rate hike, especially given the increase in cost pressures. Sterling garnered support from rising UK Bond yields, and futures markets are pricing an 88% chance of a 0.25% hike by the end of the year, and a 53% chance of a move at the August meeting.

Bank of England Governor Mark Carney’s comments today will be scrutinised, although he may be cautious given the criticism of his inconsistent guidance before May’s meeting. Sterling held above 1.3200 against the Dollar at market open and the Euro strengthened to near 1.1312.

EUR

Eurozone Services PMIs produced a four-month high of 55.2 with stronger growth in new orders. Input costs increased at the fastest pace for five months with the strongest increase in selling prices since February. Eurozone bond yields edged higher which provided some Euro support, although narrow ranges prevailed amid low trading volumes surrounding the US Independence Day holiday.

The Euro then gained further support after reports that some European Central Bank (ECB) members were looking to push for an earlier increase in interest rates. The Euro gained further ground in early Europe on Thursday with a move to near 1.1700 resistance against the Dollar in choppy conditions.

USD

The Dollar gave up ground against most of the major currencies throughout the day yesterday in thin conditions due to the US 4th of July holiday.

Prolonged trade tensions kept the Dollar bulls on the defensive yesterday, dragging the US Dollar Index to the 94.00 handle. Investors remained cautious ahead of a July 6th deadline when the US is set to impose fresh tariffs of up to $50 billion on Chinese products, with China vowing to retaliate with the same value of tariffs on the US goods; heightening fears of a potential full-blown US-China trade war.

The latest Federal Open Market Committee meeting minutes, due later today, will provide fresh clues over the US central bank’s monetary policy outlook which, along with Friday’s official US monthly jobs report, popularly known as NFP, will influence the Dollar’s price dynamics.

Markets now await Friday’s NonFarm Payrolls report. Dollar payments also resume today after yesterday’s holiday.

Data to watch:

02:30 JPY BoJ’s Board Member Masai Speech
08:15 CHF Consumer Price Index (YoY) (Jun)
11:00 GBP BOE’s Governor Carney speech
12:15 EUR German Buba President Weidmann speech
13:15 USD ADP Employment Change (Jun)
13:15 EUR ECB’s Mersch speech
13:30 USD Continuing Jobless Claims (Jun 23)
13:30 USD Initial Jobless Claims (Jun 30)
14:45 USD Markit PMI Composite (Jun)
14:45 USD Markit Services PMI (Jun)
15:00 USD ISM Non-Manufacturing PMI (Jun)
19:00 USD FOMC Minutes
23:30 AUD AiG Performance of Construction Index (Jun)

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