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Earnings key to rate hike

Earnings key to rate hike

GBP
Following Justine Greening’s call for a second referendum, Downing St insisted that there would be no second referendum under any circumstances. Modestly higher domestic bond yields gave some protection to the Pound in an otherwise listless day. Reports suggesting that the government would heed advice by Eurosceptic Conservative Party MPs in order to pass the Customs Bill triggered fresh uncertainty, underming Sterling gains, as the amendments could increase EU opposition.

Sterling was hampered in the afternoon by a sharp decline in oil prices and UK bond yields also drifted from their peak. The government narrowly won the Customs Bill votes, but came close to defeat on one vote and faces further votes on Tuesday, maintaining the high degree of uncertainty and political fears. Sterling was able to resist selling and settled around 1.3240 against the Dollar with the Euro just below 1.1300.

This morning’s earnings data will be key, and a miss on the Average Earnings figures will likely deflate rate hike expectations, and consequently the support for Sterling.

EUR

The Euro ignored the slightly worse than expected trade balance number to notch up a good day of gains against the US Dollar and Pound alike. The focus for the Euro will now shift to the release of inflation numbers from the EU and any major change in these numbers will have an immediate impact.

The Euro gained support yesterday after optimistic briefings on the EU-China trade summit helped ease trade fears. Italian Deputy Prime Minister Salvini stated that Italy is giving the EU a last chance on its future and that exiting the Eurozone is not on the government’s agenda. EU Affairs Minister Savona stated that the European Central Bank (ECB) should be the lender of last resort for the Eurozone and that Italy should be allowed to increase fiscal investment. Italian bonds strengthened and there was a benefit to the currency.

USD

The US Dollar is weaker across the board today as the appetite for risk returns to the market. One reason for the the weakness was due to Minneapolis Federal Reserve (FED) President Neel Kashkari claiming the flattening yield curve requires the end of the rate hiking cycle. As the trade tariff war seems to be settling down, the demand for risk is slowly returning to the currency markets at the Dollar’s expense.

The greenback did get a minor lift following the release of US economic data – monthly retail sales and Empire State manufacturing index, but the uptick turned out to be rather short-lived and did little to hinder the ongoing positive momentum. EURUSD ended the day just above 1.1700 and was seen making a fresh attempt to build on its strength.

Today’s key focus would be on the Fed Chair Jerome Powell’s testimony on the Semiannual Monetary Policy Report before the Senate Banking Committee. Investors will be looking for fresh clues over the Fed’s view on monetary policy amid intensifying global trade and would eventually influence the USD price dynamics.

Ahead of the key event, the US economic docket features the release of June industrial production and capacity utilization data, forecasted to come in at 0.5% and 78.3% respectively, and will be looked upon to grab some short-term trading opportunities.

Data to watch:

08:30    GBP Claimant Count Change (Jun)

08:30    GBP Average Earnings including Bonus (3Mo/Yr) (May)

08:30    GBP ILO Unemployment Rate (3M) (May)

08:30    GBP Average Earnings excluding Bonus (3Mo/Yr) (May)

13:15    USD Capacity Utilization (Jun)

13:15    USD Industrial Production (MoM) (Jun)

14:00    USD Fed’s Powell Speech

 

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