The dollar remained solidly on the back foot yesterday as markets digested Wednesday’s dovish Fed Minutes and Powell testimony. Yesterday’s key data release challenged the Fed’s assertion that there was little upside risk to inflation, as the Consumer Price Index printed above expectations, rising 2.1% year on year excluding food and energy. The details of the report showed several categories related to labour costs increasing strongly, including lawn care, moving, storage and freight, and household repairs. Elsewhere, crude markets have rallied as tropical storm Barry is expected to hit Louisiana over the weekend, creating a high flooding risk as well as likely disruptions to oil and gas supply in the Gulf of Mexico – as of Wednesday nearly a third of all US oil production in the Gulf had been shut down. Today’s main US data release will be the Producer Prices Index measure of inflation at 13:30 BST.


Before we take a deep-dive into the UK’s political developments, in foreign exchange markets sterling has rebounded from fresh 2-year lows Tuesday amidst a broadly weakening dollar. Now for the fun stuff, Johnson and hunt are under the microscope again tonight as forensic BBC journalist Andrew Neil interviews both candidates as the leadership race nears its conclusion. The interviews will be aired from 19:00 BST on the BBC, and with esteemed political journalists stating that less than half of the membership votes have yet to be submitted, the race is certainly on. This puts the latest batch of TV and radio interviews back into play, but the Conservative Home website suggests Boris will still land in the 67-72% range. The big questions for the candidates will continue to revolve around their Brexit plans, which are becoming increasingly important for the Brexiteer faction as the Europhiles in Westminster reorganise yet again. Both the Huffington Post and the Independent have heard that the Chancellor of the Exchequer, Philip Hammond, could mount a “sit-in” if the next leader attempts to dissolve parliament to force through a no-deal. The political drama doesn’t stop there as we sail Strait over to Hormuz where Iranian boats tried to impede a British oil tanker before being scared off by a British Royal Navy ship.


The euro continued to make ground against the dollar yesterday as inflation data from Germany and France stoop strong. The CPI measure in Germany increased in June to 1.6% from the 1.4% reading a month prior, with the increase driven by a 0.4 percentage point increase in the prices of clothes and shoes, along with a jump in services inflation 1.2% in May to 2.0%. Across the border, services inflation jumped 0.6 percentage points in France. The theme is fitting with the output data in the Eurozone, where the service sector continues to pick up the slack left by the industrialised sectors. Today, eyes will turn to the euro-area industrial production data at 10:00 BST, which may have risen 0.2% in May following the sharp 0.5% drop in April. Yesterday also saw the release of the minutes from the latest ECB meeting last month, which outlined that the Governing Council are poised to act if the “soft patch” in the Eurozone economy drags on and becomes a more entrenched slowdown. The bank was “ready and prepared” which didn’t shock markets after further loosening was priced in following Draghi’s comments in Sintra.


Oil sensitive currencies continue their climb today against the dollar as fears over storm Barry send WTI crude prices back above $60 per barrel. With little headlines overnight, you wouldn’t normally see USDCAD hit a fresh year-to-date low, but a broadly softening dollar after the Fed confirmed a rate cut this month puts the loonie back in the driving seat. The Bank of Canada meeting on Wednesday is pretty much in the rear-view mirror now, and the focus is back on the supportive data releases with inflation and retail sales data scheduled for next week. It must also be noted that the latest CFTC positioning report highlighted the first net long position in CAD since March 2018.