Focus now on BoE
Sterling maintained a firm tone yesterday after reaching multi-week highs just under the 1.12 mark. The Focus will now shift to comments from Bank of England Governor Bailey who will be speaking just after 2pm UK time today.
Media reports have also suggested that the EU have warned Prime Minister Johnson that he has less than two weeks to save a post-Brexit trade and security deal. Political pressure will surely intensify should no feel for any agreement being reached as the summer holiday season also comes to an end. Reports are also speculating that EU chief negotiator Michel Barnier and UK counterpart David Frost will hold emergency talks next week.
Sterling again is holding strong today and currently trades just above the 1.3280 against a very vulnerable Dollar whilst against the Euro, 1.1170 seems to be the mark in what continues to be a tight short term trading range.
US initial jobless claims increased slightly to 1.01mn in the latest week from 1.10mn and fractionally above consensus forecasts. Continuing claims declined to 14.53mn from 14.76mn, although above market expectations. Second-quarter GDP data was revised to a contraction of 31.7% from 32.9% and slightly stronger than forecasts.
The principal focus was on Federal Reserve (Fed) Chair Powell’s speech to the Jackson Hole symposium as he outlined the new policy framework.
Powell confirmed that the central bank would adjust the inflation target to an average of 2% with employment given greater importance in achieving goals. The central bank is now more confident that higher employment will not lead to higher inflation and the economy will be allowed potentially to run at a faster rate in an attempt to boost long-term employment. The implication is inevitable that interest rates will remain at very low levels for a longer period and potentially undermine the dollar, although details were sketchy. Markets will be looking for further details in September. There were no comments on yield-curve control or negative interest rates.
The dollar dipped sharply on the announcement with the Euro strengthening to 1.1900 but then there was then a sharp turnaround.
Euro-zone money supply growth strengthened to 10.2% in the year to July from 9.2% previously and the strongest rate of growth since April 2008.
Reservations over Euro-zone coronavirus developments had little impact despite a 4-month high in French cases. Narrow ranges prevailed ahead of the New York open with inevitable caution ahead of comments from Fed Chair Powell.
As of writing, the Euro is currently trading around the 1.1885 mark against its US counterpart.
Data to watch
13.30 USD – Core PCE Price Index
13.30 USD – Personal Spending
14.05 GBP – BOE Gov Bailey Speech
14.45 USD – Chicago PMI
15.00 USD – Revised UoM Consumer Sentiment
All Day – Jackson Hole Symposium