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Carney set to repeat dovish tones

Carney set to repeat dovish tones

GBP
Sterling was unsettled yesterday as rumours of an Autumn General Election, that emerged over the weekend, filtered through the markets. Theresa May has ruled out another Scottish independence referendum but, given Brexit concerns, the unease persisted. Negotiations between the UK and EU are set to resume this week and the prospect of a populist Italian government only adds to the uncertainty and risk.

With no significant support from Bond yields, the Pound dipped to new 2018 lows below 1.3400 against the Dollar before a modest retracement. The Euro pushed to near 1.1390 despite oil prices hitting three-year highs which would ordinarily bolster Sterling.

Markets were waiting for impetus from UK economic data and UK inflation data will be delivered on Wednesday morning. Today, Bank of England members, including Governor Mark Carney, will testify on the inflation report before the Treasury Select Committee. Sterling consolidated just above 1.3400 against the Dollar before market open with UK growth outlook doubts persisting.

USD

Minneapolis Federal Reserve (Fed) President Neel Kashkari stated that the Fed should not move too fast to raise rates, although given his long-standing dovish stance there was little Dollar impact. The Atlanta Fed’s Raphael Bostic stated that he expects two further rate hikes this year while Dallas chief Robert Kaplan stated that he expects a further two increases and could vote for another if inflation is sustained at current levels. However, he saw no evidence of a sharp increase in inflation. US Treasuries edged higher in New York trading with the 10-year yield declining to 3.07% which sapped Dollar support to some extent. There is no tier one US data scheduled for today.

EUR

The Euro appears fragile as the formation of a populist government in Italy seemed a cause for concern, particularly on the fiscal front. The new government is expected to face a vote of confidence next week while the new cabinet should be ready imminently.

Furthermore, large long positions held by the speculative community keep the Euro vulnerable to further declines, leaving the door open for a potential re-test of lows seen yesterday.

There is nothing expected data-wise today, with the focus of attention on the European Central Bank (ECB) minutes on Thursday.

Data to watch:

09:15 GBP BOE’s Governor Carney speech
09:15 GBP BOE Ramsden Speech
09:15 GBP MPC Member Saunders Speech
10:00 GBP Inflation Report Hearings

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