Fed edges closer to rate cuts
The Bank of England Financial Stability Report revealed that the chances of a ‘no-deal’ Brexit has increased but Governor Carney stated that reiterated that the banking sector could cope and was better prepared now. On the whole, Sterling sentiment remained fragile amid on-going economic and political concerns. Markets will look towards next week’s data, specifically labour-market and inflation indicators, for clues as to a potential Bank of England interest rate cut.
The Pound resisted a Euro push through the 1.1111 mark but failed to hold above 1.2550 against the Dollar. Expectations of Federal Reserve and European Central Bank rate cuts shielded the Pound, especially given a heavy short position (bets against the Pound), and Sterling opens modestly higher this morning.
US consumer prices increased 0.1% for June compared with consensus forecasts of 0.2% while the year on year rate decline to 1.6% from 1.8% matching expectations. Core prices increased 0.3%, above expectations of 0.2% with annual rate at 2.1% from 2.0%. Jobless claims declined to 209,000 in the latest week from 222,000 which continued to indicate a firm labour market. The higher than expected inflation rate dampened expectations of very aggressive interest rate cuts to some extent with futures markets seen as indicating a reduced potential for a 0.50% cut in July. The Dollar also recovered some ground following the CPI data, but underlying expectations of a looser Fed policy limited the scope for buying.
The Euro is advancing for the third consecutive session today against the Dollar, although the area in and around 1.1280 has emerged as strong resistance for the time being.
The change of heart around the pair remains supported by the recent dovish tone from Jerome Powell’s testimony as well as the FOMC minutes. That said, a 25 bps interest rate cut by the Federal Reserve later this month is already priced in, while investors continue to assess at the same time the likeliness of further cuts in the coming months.
Data wise in the Eurozone, Industrial Production is seen rebounding in May, whereas Producer Prices for the month of June will be the sole release across the ocean along with the speech by FOMC’s C.Evans.
Data to watch:
n/a CNY Imports (YoY) (Jun)
n/a CNY Trade Balance CNY (Jun)
n/a CNY Exports (YoY) CNY (Jun)
n/a CNY Trade Balance USD (Jun)
n/a CNY Imports (YoY) CNY (Jun)
n/a CNY Exports (YoY) (Jun)
08:00 GBP BoE’s Vlieghe speech
09:00 EUR Industrial Production s.a. (MoM) (May)
12:30 USD Producer Price Index ex Food & Energy (YoY) (Jun)