Post date: 16/07/2018 10:00
Provided by Ebury
The dollar recovered its losses from the previous weeks in somewhat desultory trading. The move can be explained, albeit somewhat after the fact, by the Trump’s erratic behavior in its meetings with European leaders and his constant threats to upend trading relationships in a more or less random fashion. However, the greenback managed to rise against every major world currency save a handful of Latin American ones.
The key event for currency markets this week will be the semi-annual testimony to the US congress by Federal Reserve Chair Powell on Tuesday and Wednesday. We will be listening closely for any sign that the Fed is starting to worry about the potential for a serious trade war between the US and its main trading partners.
The resignation of key members of Prime Minster May’s cabinet had surprisingly little effect on Sterling trading last week. Markets took some comfort that the publication of the Brexit White Paper provides at least a basis for negotiation, and that May appears to be pushing for a softer Brexit hat had been feared.
This week, key macroeconomic news should enable markets to take a break from responding to political headlines. Labor market data (Tuesday) and inflation numbers (Wednesday) should provide clarity about the August rate hike by the Bank of England which we are expecting and provide some support for the Pound.
An exceptionally quiet week in terms of economic data meant Euro traders had little more than Trump’s antics to react to. The common currency largely gave up the previous week’s gains in desultory trading. This week should be equally sparse, and sparsely staff trading desks will be looking for the General Affairs council on Friday to seek some clarity on the state of Brexit negotiations from the European Union side.
The most important data release last week was US inflation, which came upo almost exactly as expected. This week, in addition to the always unpredictable announcements from the Trump administration regarding trade, markets will be paying close attention to Chair Powell testimony in Congress. We look forward to learning more about the Fed’s thinking in two areas: the potential impact of a trade war on US monetary policy, and the central bank’s take on the lack of significant wage pressures in spite of the low level of unemployment. We think that fresh information in either of these areas could provide for more volatile trading in currencies than most are expecting.