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McCafferty comments could trigger Cable dive

McCafferty comments could trigger Cable dive

Sterling failed to take advantage of a recovery in oil prices yesterday with the UK’s currency struggling for direction. There was, however, no attack on the key 1.3000 level versus the Dollar during the day. Overnight, BRC retail sales data was stronger than expected with a like-for-like increase of 1.1% for July which bettered the expected fall of -0.7%. This will boost optimism surrounding spending.

Sterling sentiment soured this morning following Monetary Policy Committee (MPC) member McCafferty’s comments that a gradual approach to loosening monetary policy will be best, but further easing was likely to be required if the UK economy turns down in line with initial surveys. At market open, GBPUSD fell to 1.2971 and will test support below 1.3000 which, if broken, could lead to Sterling falling further.

June’s Manufacturing Production data is due for release this morning along with the UK Goods Trade Balance for the same month. This data will be watched closely for any clues on the direction of the UK’s economy.

Friday’s positive US employment report was reinforced yesterday by the US labour market conditions index. It recorded a figure of 1.0 for July from a revised -0.1 the previous month; June’s number was originally reported as -1.9. Strong data is showing a strong US economy, which will increase the chance of a Fed rate hike in late 2016.

Yesterday also provided insight into Republican Presidential candidate Trump’s proposed major tax reforms, with an important feature being potential changes in the regulations to bring overseas capital back to the US. If implemented, this would bolster the Dollar through increased capital inflows.

Today’s US data will no doubt add fuel to the fire of the continuing debate on potential Fed policy. The first insights into quarterly non-farm productivity and labour costs are due today at 1.30pm. Labour costs are a leading indicator of consumer inflation; when businesses pay more for labour the higher costs are usually passed on to the consumer. As the Fed have stated there will be no hike until inflation is closer to their 2.0% target, this data will give a good insight into where the US economy is heading.

The Euro made gains of 0.2% versus Sterling during yesterday’s European trading session after German Industrial Production rose by 0.8% for June following a 0.9% decline the previous month. The single currency opened up this morning at around the 1.1763 levels ahead of German Import and Export figures.

Data to watch: 7am Euro June Exports, Imports. UK 9.30am June Industrial Production, Manufacturing Production (Jun) 3pm UK NEISR July GDP.

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