Holiday Driven Market Lacking Motivation
Morning mid-market rates – The majors
August 8th: Highlights
- Longer term effect of trade dispute bringing concern over slowdow
- Sterling clinging to 1.2920 support
- Eurozone economy needs a boost
Dollar index lower but within the recent range
In the case of the dollar, the prime driver of recent dollar strength has been monetary policy. There is little doubt that Jerome Powell’s Fed has surprised the market with just how hawkish their outlook for the economy has been. Having said that, with Q2 GDP at 4.1% they seem to have made the right call to adopt a continued tightening bias even if the President is hedging his bets by cautioning against “applying the breaks before the car has reached full speed”.
There are a couple of headwinds for the economy on the horizon which may see the Fed change from two more hikes this year to one which will probably happen next month. Were there to be a postponement to the hike that is heavily priced in for September 25/26, that could lead to a significant correction for the dollar.
Yesterday, the dollar index traded in a 95.37/94.99 range, closing in the middle of the range, at 95.18.
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Barnier thinks Fox cried wolf
The EU’s Chief Negotiator Michel Barnier believes Fox’s comments to be little more than tactical and prefers to wait to see what fresh amendments to the “Chequers Proposals” Theresa May brings to the table when the two sides reconvene early next month. If Mrs May’s “cupboard is bare” then Dr. Fox’s comments may have a little more than a ring of truth to them.
Sterling suffered versus the euro yesterday as several buyers of the single currency came to the market. It traded down to 1.1153, closing close to the low at 1.1560. Versus a weaker dollar, the pound managed to hold its own closing at 1.2939 just five pips below the opening.
Euro rally masks weakening data
Any such action would, counter-intuitively, provide support to the euro as it could be argued that such a move could herald a rate hike before Q3 ‘19.
The German trade surplus fell to EUR 19.3 billion in June, around a billion below both expectation and May’s actual. Industrial production fell into negative territory, slowing by 0.9% after having grown by 2.6% in May.
At some point, Eurostat, the EU enterprise which collects and collates such data, will need to study the reasoning behind issuing individual members data as well as Eurozone-wide figures since it simply creates unnecessary volatility.
The single currency rallied versus a correcting dollar yesterday. It reached 1.1608, closing just nine pips lower. It has continued to rally overnight, reaching a high of 1.1629.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”