Dollar adrift ahead of Jackson Hole
Yesterday, the UK issued a fresh series of positioning papers on Brexit and Prime Minister May was optimistic that sufficient progress would be made by October for the next phase of the talks to take place. The overall impact was limited, with EU spokesman Winterstein repeating that sufficient progress on Brexit was needed before trade talks can start. Underlying confidence in the Brexit process remained very fragile amid concerns that little progress would be made in the short term, and with a lack of detail at that.
There were no significant economic developments during the day with Sterling moves dominated by wider Euro and Dollar trends. The Pound tested resistance above the 1.2900 level against the Dollar but remained unconvincing with a fresh retreat back below this level while the GBPEUR weakened to 10-month lows of 1.0923. Markets overall struggled to find any convincing reasons to buy Sterling amid fundamental reservations with little change at market open.
The German Bundesbank remained optimistic surrounding the German outlook in its latest monthly report with accounts of strong economic momentum during the summer months. According to the Bundesbank, 2017 GDP growth may exceed its June forecast, driven by industry, exports, and consumption while core inflation is likely to pick up in the coming months.
The Euro found support close to 1.1750 against the Dollar and edged higher into the US open. Dollar selling gathered pace as the Euro moved above the 1.1800 level with a one-week peak close to 1.1830.
The only US data release of note yesterday was the Chicago Fed National Activity index which declined to -0.01 in July from 0.16 the previous month; improvement in the employment index was offset by losses for other components.
Although Fed Funds futures are steady, with the chances of a further rate hike this year seen at just above 40%, as well as a slight widening of yield spreads favouring the Dollar, the Greenback was unable to make headway. Medium-term volatility surrounding debt-ceiling negotiations, which are likely to come to a head by early October among concerns over brinkmanship and a government shutdown, is hampering Dollar progress. From a shorter-term viewpoint, there is an important element of uncertainty regarding the Jackson Hole event with Fed Chair Yellen speaking on Friday. Across the board, the Dollar has remained weak but did make gains against the Yen yesterday as a revival in risk appetite brought some pressure on the Japanese currency.
Today we see the Housing Price Index (MoM) out with no change expected from the previous reading at 0.4%.
Data To Watch:
9:30am GBP Public Sector Net Borrowing (Jul)
10:00am EUR ZEW Survey – Current Situation (Aug), ZEW Survey – Economic Sentiment (Aug)
2:00pm USD Housing Price Index (MoM) (Jun)