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Rudderless on rate hikes, Sterling hits the rocks

Rudderless on rate hikes, Sterling hits the rocks

GBP 
Bank of England Deputy Governor Ben Broadbent avoided monetary policy and the economic outlook in his speech yesterday. The markets had re-positioned in expectation of a “hint” over the need for higher interest rates; the lack of comment triggered a significant “correction”. The Pound retreated to below 1.1200 against the Euro for the first time in eight months, and 1.2850 against the Dollar.

Today’s focus will be on whether there has been any increase in earnings growth, which may increase chances of an interest rate hike. Mediocre data would increase speculation that the Bank of England will hold steady in the short term.

USD

The US job openings data was weaker than expected with a decline to 5.67mn for May from a revised 5.97mn the previous month, although the increase in hires and quits rate maintains the view that the labour market is healthy.

Fed Governor Lael Brainard stated that she would back an early move to start shrinking the balance sheet and that further rate increases should be inflation data dependent. She also commented that she considers the normalisation process well under way and that only limited further moves would be needed to bring the Fed Funds rate to a neutral level.

The Dollar weakened after her relatively dovish comments and the Euro re-tested the 1.1440/50 resistance area. A break higher triggering stop-loss Euro buying and a peak around 1.1470. The Greenback remains on the defensive ahead of Fed Chair Janet Yellen’s congressional testimony this afternoon.

EUR

The European Central Bank’s Benoît Cœuré commented that the central bank was not using monetary policy to target the exchange rate. This triggered some speculation that there would be greater willingness to tighten policy.

Data To Watch: 
9:30am GBP ILO Unemployment Rate (3m) (May), Claimant Count Change (Jun) 
10:00am EUR Industrial Production w.d.a (YoY) (May), Industrial Production s.a (MoM) (May). n/a EUR 10-y Bond Auction
3:00pm USD Fed’s Yellen testifies
7:00pm Fed’s Beige Book
11:59pm GBP RICS Housing Price Balance (Jun)

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