Markets await Fed as Sterling recovers slightly
GBP Political fears continued to dominate Sterling sentiment with investors increasingly perturbed by the risks of a ‘no-deal’ Brexit outcome, especially with only 92 days left to find a compromise. Boris Johnson reiterated his intention for the UK to exit the EU on October 31st and that talks would continue while Irish PM Leo Varadkar reiterated that the Withdrawal Agreement could not be re-negotiated.
In conjunction with the political risk, the markets remained apprehensive of the risk of further month-end selling with the Pound hovering just above 1.2150 against the Dollar and 1.0950 against the Euro which is a whisker away from 28 years lows. UK consumer confidence edged up in July, but fragile sentiment remained ahead of tomorrow’s Bank of England policy meeting.
The US core PCE prices index increased 0.2% on the month for the third successive month with the annual rate increasing slightly to 1.6% from 1.5%, although this was marginally below market expectations of 1.7%. Consumer confidence in the US increased sharply to 135.7 for July from 124.3 the previous month with a substantial increase in the expectations index while confidence in the labour market strengthened.
The data overall reinforced expectations that the Federal Reserve (Fed) would look to adopt a small interest rate cut as an insurance measure rather than embarking on an aggressive easing strategy. The firm employment readings also boosted confidence in a solid jobs report on Friday.
The Euro edged above the 1.1150 level against the Dollar yesterday afternoon held around the same level this morning as the dollar retreated slightly from 2-month highs. There will be an extra choppy month-end trading and volatility will intensify after the Fed rate decision. Markets are expecting a 0.25% rate cut with the potential for dollar support if the statement is less dovish than expected.
The Euro is lacking a clear directional bias ahead of key data releases today. German data released earlier this morning was expected to show retail sales consumer spending rose 0.5% month-on-month in June, actually beat expectations with a 3.5% reading. Further data due today is German Unemployment Change, which is expected to show the economy added 2K jobs in July and the seasonally adjusted jobless rate steadied at 5%. Meanwhile, the Eurozone’s Consumer Price Index is forecasted to slip to 1.1% year on year in the preliminary read for July against 1.3% in June. Economists expect Eurozone’s GDP growth to have halved in the second quarter to 0.2% against 0.4% in the first quarter.
A dismal day of data releases however, will only strengthen the case for aggressive easing by the European Central Bank possibly sending the Euro against the Dollar into a sharp decline, possibly to around 1.11 region, ahead of the US Federal Reserves rate decision tomorrow. As writing the Euro is currently trading at 1.1155 against the Dollar.
Data to watch:
00:01 GBP GfK Consumer Confidence (Jul)
07:00 EUR Retail Sales (MoM) (Jun)
08:55 EUR Unemployment Rate & Change (Jul)
10:00 EUR Gross Domestic Product s.a. (YoY) & (QoQ) (Q2)PRELIMINAR
10:00 EUR Gross Domestic Product s.a. (QoQ) (Q2)PRELIMINAR
10:00 EUR Consumer Price Index (YoY) & (QoQ)(Jul)PRELIMINAR
10:00 EUR Consumer Price Index – Core (YoY) & (QoQ) (Jul)PRELIMINAR
1:15 USD ADP Employment Change (Jul)
7:00 USD Fed’s Interest Rate Decision, Monetary Policy Statement & Press Conference