Janet, don’t run before you can walk
Theresa May and Donald Tusk concluded that Brexit negotiations are currently not ready for the next stage as sufficient progress has not yet been made.
The outlook for Sterling turned on its head when the Bank of England communicated that they were carefully considering raising interest rates.The news saw the Pound move higher against a host of currencies and, in the process, formed what appears to be a solid base to the post-EU referendum declines. As a result, the Pound rose to a 10-week high against the Euro, as political uncertainty following the weekend’s general election in Germany continued to weigh on the bloc’s currency.
The US Dollar ended the day higher against most of the major currencies but what’s noteworthy is that the Greenback shrugged off Fed Chair Janet Yellen’s hawkish comments.
In contrast to her less enthusiastic peers, Janet Yellen revealed that the central bank might have overstated the strength of the labour market and inflation estimates. Speaking in Cleveland, Ms Yellen said that the trends in the employment, wage, and price pressures shifted from what officials had forecast. This would mean a more dovish Fed when it comes to monetary policy tightening.
At its meeting last week, the Federal Open Market Committee (FOMC) left interest rates unchanged and lowered its forecasts for inflation. Yellen, however, said that the pace of rate hikes is warranted.
Rate hike expectations increased following her speech but after an initial rally, Treasury yields and the US Dollar descended from their highs. Part of the retracement in the Greenback had to do with the more relaxed comments from Fed President and FOMC voters Kashkari, Dudley, and Evans, but ultimately the next time the Fed is expected to raise rates is in December. Between now and then, a number of other central banks could take steps first, making their currencies more attractive than the Dollar.
Looking ahead, the economic data today will see the US durable goods orders followed by speeches from Lael Brainard from the FOMC.
European Council President Donald Tusk has said Brexit negotiations have to move to the next phase of discussing the future relationship, including trade, if a smooth transition is to talk place. After a meeting in Downing Street with British Prime Minister Theresa May, Donald Tusk said he welcomed a new constructive and realistic tone from the government.
Investors and traders sentiments were mixed from the Euro yesterday as the single currency saw losses and gains against its rivals. On the downside, concerns that months of coalition negotiations in Germany could deter efforts by Angela Merkel and Emmanuel Macron to forge a closer Europe.
The Euro strengthened towards the back end of yesterday against the Pound as the pair dropped as low as 1.1369 whilst, against the Dollar, the Euro weakened to 1.1747 due to a broadly stronger Dollar.
Today’s market data has Eurozone M3 and credit growth numbers, as well as Italian confidence data. Further, in Germany, the focus will remain on the fallout from the election as Merkel faces tough coalition talks and the rise of the far right party Alternative fur Deutschland (AfD).
Data to Watch:
13:30 USD Durable Goods Orders (Aug)
USD Durable Goods Orders ex Transportation (Aug)
15:00 USD Pending Home Sales (YoY) (Aug)
USD Pending Home Sales (MoM) (Aug)
15:30 USD EIA Crude Oil Stocks change (Sep 18)
16:45 CAD BoC Governor Poloz Speech
18:30 USD Fed’s Bullard speech
19:00 USD FOMC Member Brainard Speech
21:00 NZD RBNZ Rate Statement
NZD RBNZ Interest Rate Decision