Nobody knows more about pressure than the U.S., sad!
With no tier one UK data, trading activity was muted. This was compounded by the summer holiday season and traders looking for US and Eurozone developments. The parliamentary recess and the fact that Bank of England officials will not be making any comments ahead of next week’s Monetary Policy Committee (MPC) meeting also contributed to the “doldrums”.
Financial Policy Committee member Alex Brazier warned over the risks of complacency on rising personal debt, maintaining the underlying concerns surrounding UK credit trends.The bank is likely to be cautious surrounding the implications of extremely low interest rates. There will, however, also be unease surrounding the risks of any policy tightening. The International Monetary Fund lowered its growth forecasts for the UK and US, to muted reaction.
Sterling moved back above 1.3000 against the Dollar and held this level during the day while the Euro declined to the 1.1190 area after having hit resistance close to 1.1110.
Yesterday’s advanced US manufacturing and services PMI readings gave some brief support to the Greenback, although the subsequent disappointing figures from the housing sector forced the initial optimism to evaporate.
The Federal Open Market Committee (FOMC) is widely expected to stand firm on interest rates when it concludes its meeting Wednesday afternoon. However, given that this is the last meeting before the Autumn (Fall), traders will closely monitor the language of the official statement. Earlier this month, Fed Chair Janet Yellen told Congress that the central bank will maintain a steady hand in normalising monetary policy. Yellen’s caution comes amid months of dismal economic data, including a sharp slowdown in inflation. One additional hike is forecast this year.
Rising uncertainty over the US political scenario keeps weighing on the already deteriorated sentiment around USD, while ‘Trumpcare’ and the Russia-gate woes are still far from abated. The US Dollar Index, which gauges the Buck vs. its main rivals, has resumed the downside on Tuesday and is currently navigating around the 93.70 band.
The North American docket today sees the S&P/Case-Shiller Home Price Indices released at 1pm; the Federal Housing Finance Agency (FHFA) will also release the housing price index at the same time. Finally, the Federal Reserve Bank of Richmond will publish its July manufacturing index.
The Eurozone Manufacturing Purchasing Managers Index (PMI) fell to 55.8 in July from 56.3 in June, as consensus expected a minor decline to 56.2. Yesterday’s unexpected decline of the PMI provided a good reason to slow the recent rise of the Euro.
However, it’s far from sure that a softer German IFO, rating current German business climate and measuring expectations for six months going forward, will have a similar impact. The figure is expected to remain at an elevated level, but continuing a downward trend that supports a softer tone from the European Central Bank (ECB) following its renewed focus on growth.
ECB member Yves Mersch stated that risks to the growth outlook may be to the upside, although he reiterated that monetary accommodation was still needed. The comments were broadly in line with recent ECB comments, although the underlying confident tone helped underpin the Euro. The single currency found support on approach to the 1.1620 area against the Dollar and moved back above 1.1650 this morning as the US currency failed to make any significant recovery from 13-month lows.
In Greece, for the first time since 2014, the government has set out a plan to return to debt markets. A 5Y bond will prove an important market test. The announcement follows S&P’s decision on Friday to upgrade its Greek debt outlook from ‘stable’ to ‘positive’. Prime Minister Alexis Tsipras wants to test market appetite as the exit from the current bailout program in August 2018 draws nearer.
Data To Watch:
8:00am EUR IFO- Current Assessment (Jul), IFO- Business Climate (Jul), IFO- Expectations (Jul)
1:00pm USD S&P/Case Shiller Home Price Index (YoY) (May), Housing Price Index (MoM)(May)