The US dollar has regained some strength once more as day to day US economic data continues to question the apparent insistence of Fed speakers that rate cuts are necessary. Retail Sales and Industrial Production yesterday once more added some wind back into the sails of the dollar bulls. However, whilst this gives the dollar a near term boost, it will do little to change the outlook of the Fed which has become notably more dovish recently. Fed chair Powell once more reiterated that the FOMC would “act as appropriate”, whilst voting dove on the committee Charles Evans talked about a 50bps cut to help stoke the fires of inflation. It seems to be that the US dollar (and more broadly major currency pairs) will be somewhat rangebound in front of the crucial FOMC meeting at the end of the month. How the FOMC communicates its rate cut (and potentially further cuts to come) will be the outlook defining moment. Whilst other major pairs range, we do however still have trending direction on Cable, with sterling falling to more than two year lows against the dollar yesterday. The battle to be the new Conservative Prime Minister has brought the two candidates to make increasingly more hard line stances on Brexit. The latest move to talk of scrapping the Irish backstop is conceivably a non-runner for the EU-27 and means that a push towards a “no deal” Brexit is an ever more stark reality. Sterling breaking down is a reflection of the market’s view of the impact of this.
The Wall Street rally into new highs has just hit the buffers for now as the S&P 500 fell by -0.3% to 3004 last night. US futures are a touch more stable this morning, a shade higher at +0.1%. However, this has still dragged on Asian markets with the Nikkei -0.2% and Shanghai Composite -0.1%. European indices are also once more starting the day in cautious mode, with the FTSE futures -0.2% and DAX futures -0.1%. In forex, there is little real move across the G4 majors, whilst the continued positive performance of NZD is notable. In commodities, the slip on gold is holding, whilst oil has started to see a degree of support after yesterday’s strong decline.
On the economic calendar, the second of the three tier one UK data releases this week comes in the form of inflation for June. UK CPI at 0930BST is expected to show headline CPI remaining at +2.0% (+2.0% in May) whilst core CPI is expected to tick higher to +1.8% (from +1.7%) and back in the direction of the Bank of England’s 2% target. The final Eurozone inflation for June is at 1000BST which is expected to show no change from the headline HICP at +1.2% (+1.2% flash, +1.2% final in May), with core HICP also remaining at +1.1% (+1.1% flash, +0.8% final May). Later in the session, the US data is at 1330BST with Building Permits for June which is expected to increase marginally to 1.300m (from 1.299m), with Housing Starts expected to slip slightly to 1.261m (form 1.269m in May. EIA oil inventories are at 1530BST and are expected to show another drawdown on weekly crude stocks by -3.4m barrels (-9.5m barrels last week) with distillates building by +0.4m barrels (+3.7m last week) and gasoline in drawdown by -1.9m barrels (-1.5m last week).