After wrapping last week with losses of three-quarters of a percent against the majority of the G10 board, the United States Dollar is again starting a bit rudderless.
Overview
Thin trading after the Fourth of July holiday kept prices relatively steady through Friday’s session, but a busy data and speaker calendar this week promises more action. The first major event comes from Fed Chair Jerome Powell’s semi-annual congressional testimony tomorrow and Wednesday, which is likely to show the same level of optimism on the health of the US economy as he did last week when he spoke in Portugal. After a set of softer labor figures from the US on Friday morning, markets have once again begun to switch back toward expecting two interest rate cuts from the Fed this year, though the central bank’s own dot plot only sees one. Nonetheless, Powell’s testimony will be a heavy focus as markets seek confirmation of such a view.
International politics continues to be at the forefront of traders’ minds after the UK’s snap election on Thursday and France’s second round of voting on Sunday. Though the implications for how successful the new French government might be are still quite up in the air, the center-left and far-left parties managed to unite and keep Marine Le Pen’s National Rally far-right party from gaining a majority in Parliament. This does leave no party with a clear majority, but Euro-area investors are breathing a sigh of relief. Le Pen’s proposed policies were decidedly protectionist and would likely have decoupled France from the rest of Europe to an extent, and as the bloc’s second-largest economy, this prompted a big risk-off reaction after the first round of voting more than a week ago. Such a move has been pared back substantially through thin weekend and holiday trading, and EUR has, after yesterday’s results, stayed close to flat against USD. Not to be outdone, the US is hosting the NATO Summit in Washington this week, which promises to be full of newsmakers.
US and international equities are up to start this week as well as political risk events move off the table and optimistic economic sentiment returns. The data calendar this week does have both UK GDP and US CPI on it for Thursday morning as traders attempt to parse through Powell’s words.
What to Watch Today…
- Jerome Powell Congressional Testimony, Tuesday & Wednesday
- UK GDP, Thursday
- US CPI, Thursday 8:30AM
- US PPI, Friday 8:30AM
- Monex USA Online is always open.
GBP ⇑
Pound Sterling extended Friday’s post-election gains into this morning, stronger just shy of two tenths of a percent since Friday’s close. Several speakers from the Bank of England are on the docket for this week, beginning with Jonathan Haskel this morning. Haskel warned that inflation coming from a ‘tight and impaired’ labor market is still his focus and he will vote to keep interest rates steady on August 1. Still to come this week are Chief Economist Huw Pill and noted hawk Catherine Mann. Outside the BoE, markets are beginning to digest the implications of such a strong margin of victory for the Labour party last week and seem to be reacting positively.
JPY ⇓
Japanese Yen, after initially gaining a bit of ground back in the Asian trading session, has slipped back and is now flat against USD even after wage data was released that seemed to support an interest rate hike from the Bank of Japan. Annual labor cash earnings showed an increase of 1.9%, and scheduled full-time pay rose as much as 2.7%. Market odds on the Bank of Japan’s action at its July 31 meeting are currently split fairly evenly between a hold and a 10 basis point hike, so it’s possible JPY finally finds some support then.
