Morning Report: 30 July 2018

July 30, 2018

GBP.  GBPUSD fell 0.03% against the dollar on Friday; a marginal move considering the lack of data released for sterling. However, this week looks set to be more interesting data wise as central banks come back into the market limelight. The Bank of England will release their latest monetary policy decision on Thursday, with the market consensus suggesting a 25 basis point increase in interest rates. This would see them rise to 0.75%, the highest rates have been since 2009. Money markets currently imply an 89.8% probability of a rate hike by the central bank, but previously reversals in market sentiment give cause for concern ahead of Thursday’s decision. “Super Thursday” as it is dubbed, due to the BoE inflation report being released with Bank of England Governor Mark Carney hosting a press conference shortly after the monetary policy decision is released, looks set to be the pivotal moment for sterling – which has failed to show a strong trend thus far this month.

EUR.  After the big drop on Thursday euro experienced a more quiet session on Friday, eventually slightly paring some of the losses made earlier against GBP and USD. Over the weekend an interview was published with one of the founders of the Italian Five Star Movement, Beppo Grillo, who argued Italy should hold a referendum on membership to the euro currency area. Italian fixed income markets remain rather unimpressed by this interview, however, showing the general expectation is that Grillo is voicing a minority opinion, not a policy plan. Tuesday is bound to be a big day for the single currency, with both the Flash Consumer Price Index reading and the First Reading of the Q2 Gross Domestic Product Growth being released. The latter is expected to show the slowdown in economic growth compared to the strong growth in 2017. Some might argue however that after the rapid 2017 growth a slowdown was expected and that, given the circumstances of imminent monetary tightening and trade tensions, that the slowdown is actually quite limited.

USD.  Expectations about the Gross Domestic Product reading for Q2 released on Friday swung wildly, with president Trump rumoured to have leaked the result at 4.8%, while the leading Atlanta Fed’s forecast was actually downgraded to 3.8% after Thursday’s negative surprises in Durable Goods Orders and the US Trade Balance. General consensus saw GDP come in at an annualised rate of 4.2% for Q2, fuelled by the tax cuts from the Trump administration, but the figure fell just shy at 4.1%. The reason for the moderation in US growth, causing the release to fall short of general expectations, was due to the fall in inventories of $28bn. The slump in inventories shaved 1.0% off of the growth figure for Q2. Generally, the G10 posted gains against the dollar on Friday with exception of CHF, GBP and SEK. The dollar index continues to trade in quite a tight range, but this week’s data calendar may see a new trend forged. This week; Personal Consumption Expenditures – the Feds favoured measure of inflation – is released for June on Tuesday, with a rate decision by the Fed Wednesday evening. There is likely to be no change in rates as 2 further hikes are implied to occur in September and December this year. Labour market data wraps up a data-filled week for the dollar on Friday. It will be interesting to see if the data continues to reiterate the strength of the US economy that was evidenced by Q2’s growth rate, possibly prompting the Fed to readjust its current hiking path.

CAD.  The loonie traded within an exceptionally tight range against USD on Friday in the absence of any Canadian data releases and although the loonie performed well, gains against the rest of the G10 currencies remained small. This week has the potential to be more lively with GDP figures for the month of May on Tuesday and the Trade Balance on Friday.

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