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IMF puts paid to Trump Rally

IMF puts paid to Trump Rally

USD 
Fed speakers added nothing of note from a currency perspective whilst global central bank officials were generally more hawkish in outlook. In this context, there was speculation that the Dollar’s global advantage in terms of growth and yield would fade. This would tend to undermine potential currency support.

US economic data had little impact with the goods trade deficit declining to US$65.9bn for May from US$67.1bn the previous month, while pending home sales recorded a 0.8% decline for May.

The International Monetary Fund (IMF) trimmed its growth forecast for the US economy to 2.1% in 2017 and 2018, amending April’s projections of 2.3% in 2017 and 2.5% in 2018. With the world’s largest economy struggling to hit Trump’s 3% GDP target as it confronts issues ranging from an ageing population to low productivity, sentiment is likely to take a hit with the Dollar finding itself under renewed selling pressure.

EUR

Markets believe the European Central Bank (ECB) is closer than ever to tapering Quantitative Easing, which is evident from the plunge in the EURUSD pair after the central bank’s U-turn on Draghi’s hawkish comments was short lived. There were also comments from sources that markets had misjudged ECB Draghi’s monetary policy commentary delivered in his speech on Tuesday.

The Euro fell against the Dollar to a low of 1.1291 yesterday before regaining poise to end the day higher at 1.1376. The latest Eurozone money supply data recorded stronger growth in private loans which should maintain a more confident tone surrounding the growth outlook and provide reassurance to the ECB.

German CPI data out later today is expected to show a slight drop in inflation. Better-than-expected data would only boost speculation of early ECB policy tightening and yield another leg higher in the German yields and therefore the Euro.

GBP

The UK Nationwide house-price data recorded a 1.1% increase for June after three successive monthly declines in prices.

Bank of England Governor Mark Carney stated that the Monetary Policy Committee (MPC) would be discussing higher interest rates over the next few months. Carney maintained that a hike would be data dependent, but if growth conditions held relatively steady the inflation implications of Sterling weakness and an easing of spare capacity would move the bank towards raising interest rates. The overall tone and timing of the remarks suggest that he wanted to convey a more hawkish tone.

Sterling pushed sharply higher following the remarks with highs above 1.2950 against the Dollar while the Euro retreated below 1.1365. The Pound was unable to extend a recovery against the Euro, but there was a move to test resistance above 1.2950 against the Dollar, despite further underlying UK political and economic uncertainty.

Date To Watch: 
7:00am EUR Gfk Consumer Confidence Survey (Jul), 
9:30am GBP Consumer Credit (May), Mortgage Approvals (May), 
10:00am EUR Services Sentiment (Jun), Consumer Confidence (Jun), Industrial Confidence (Jun), Economic Sentiment Indicator (Jun), Business Climate (Jun), 
1:00pm EUR Consumer Price Index (MoM) (YoY), Harmonised Index of Consumer Prices (MoM) (YoY) (Jun). 
1:30pm USD Initial Jobless Claims (Jun 23), Gross Domestic Product Price Index (Q1), Gross Domestic Product Annualised (Q1), Personal Consumption Expenditures Prices (QoQ) (Q1), Core Personal Consumption Expenditures (QoQ) (Q1)

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