Daily Update - 1st August 2018
The Euro declined against US dollar yesterday as dollar firmed on believes that U.S. Federal Reserve is set to reaffirm the outlook for further gradual rate rises at the end of its two-day monetary policy meeting on Wednesday. On the data front, U.S. consumer spending increased solidly in June as households spent more at restaurants and on accommodation, building a strong base for the economy heading into the third quarter, while inflation rose moderately. Other data showed employers boosting benefits for workers in the second quarter, but the wage growth slowed down. Strong economic growth and steadily rising inflation are likely to allow the Federal Reserve to continue gradually raising interest rates. Sterling declined against dollar as the dollar rebounded and investors prepared for a bank of England policy meeting this week. Sterling has recovered somewhat in recent sessions, moving away from the 10-month low it touched earlier July on growing worries that Britain was headed for a cliff-edge departure from European Union. Recent economic data in Britain has pointed to an economy that is recovering from the slowdown in the first-quarter, but is still struggling, with wage growth weaker than expected given low levels of unemployment and limited domestic inflationary pressures, The BoE appears comfortable with the market pricing in a rate rise on Thursday and investors see that as an indication the second rate hike since the financial crisis is around the corner. For the EUR, economic data out of the Eurozone is limited to July manufacturing PMI numbers out of Spain and Italy and finalized manufacturing PMI figures for France, Germany and the Eurozone.For the Pound, it’s the day before Super Thursday, with July’s manufacturing PMI scheduled for release, forecasts pointing to slightly slower growth in the sector, though not by any margin that could throw the BoE off course from its heavily anticipated rate hike. While focus will be on the PMI figure, July house price figures are also forecasted to be released in the early part of the morning.Across the Pond, it’s another busy day for the Dollar, with July’s ADP nonfarm employment change figures, the market’s preferred ISM manufacturing PMI and the finalized July Markit manufacturing PMI scheduled for release ahead of the FOMC interest rate decision and release of the all-important rate statement. While we can expect the nonfarm and ISM manufacturing PMI to provide some direction, Dollar sensitivity to any weak stats amidst the ongoing trade war heightened, focus will be on the rate statement. Softer than expected June core inflation figures on Tuesday, which followed the softer 2nd quarter numbers released on Friday, may have eased the need to be particularly hawkish and commit to a further 2 rate hikes for the year. It will ultimately boil down to whether there’s a green light for a September move, economic conditions favouring a move, with the FED likely to be eager to build an interest rate buffer ahead of any economic slowdown. Surprises are what trigger market moves, so if the Fed signals that officers are more concerned about the trade war effects on the economy, a reaction is possible. A huge surprise will be a change in the "gradual path" stance, but chances of any of these happening are quite limited. US Trump tweeting is the loose wire that can trigger the most action later today.Yesterday’s Focus
Yesterday’s explained
Today’s Focus
