Raab hands in same homework again
The Pound failed to hold above 1.3200 against the Dollar yesterday and initially drifted lower as the US currency regained ground. Euroscepticism in response to Brexit proposals hampered Sterling sentiment. Fresh Brexit concerns arose as EU Chief Negotiator Michel Barnier adopted a negative tone and stated that the UK trade proposals were little changed .
Wider Euro losses assisted Sterling to push to 1.1267, before finding Euro support. Wider US gains pushed Sterling to lows near 1.3100 after the European market close. Futures markets are continuing to price in circa 80% probability of a UK rate hike at next week’s policy meeting. Political reservations continued to impede Sterling support this morning, as it opens near 1.3100 amid an opinion poll suggesting increased support for a second Brexit referendum.
Yesterday’s disappointing US macro releases did little to hinder the USD. Surging US Treasury bond yields provided a significant boost to the greenback and helped offset disappointing US macro releases on Thursday.
US gross domestic product (GDP) will headline an active session in global finance today. The report will provide insight to policymakers, business leaders, and investors about the status of the US economy. President of the Reserve Bank of St. Louis Bullard is not a member of the Federal Open Market Committee (FOMC) but may provide insight on the health of the domestic economy and the path of monetary policy in a speech set to begin 10 minutes before the Department of Commerce issues its preliminary estimate of first quarter GDP.
The report will also contain the quarterly core personal consumption expenditures (PCE) index, which is the Fed’s preferred measure of inflation. The core PCE index likely slipped to 2.2% in the second quarter compared with 2.3% in January-March.
As anticipated, there were no major shocks coming out the ECB’s monetary policy statement or during Mario Draghi’s speech, which hinted at a positive future for the Eurozone. QE is still set to end at the back end of 2018 and an interest rate rise is still forecasted for the end of 2019. Core inflation fell from 1% to 0.9%, with the headline inflation rate at 2% – the ECB’s target.
The only slight effect this had on markets was a small EUR weakness due to the markets being tightly aligned with their guidance. The EUR/USD dipped just below 1.1650 because of a lack of hawkish stance on Draghi’s behalf. He did comment that the Trump/Juncker meeting was a “good thing”, however nothing else was said on the matter.
This week has been relatively quiet for the EUR, but next week looks set to be more lively in terms of economic data, with GDP and CPI numbers due on Tuesday, the US Fed’s interest rate decision on Wednesday and the BoE interest rate decision on Thursday.
Data to watch:
13:20 USD Fed’s Bullard speech
13:20 USD Gross Domestic Product Price Index (Q2)
13:20 USD Gross Domestic Product Annualized (Q2)
13:20 USD Personal Consumption Expenditures Prices (QoQ) (Q2)
13:20 USD Core Personal Consumption Expenditures (QoQ) (Q2)
18:00 USD Baker Hughes US Oil Rig Count