NIEUWS EN ANALYSES

USD

Every G10 currency apart from the loonie sat in the red against the greenback last week when measured over the course of five working days. Most of the dollar strength arrived on Friday as June’s NonFarm Payrolls highlighted the resilience of the US labour market with the economy adding 224,000 jobs despite bearish expectations of around 160,000. Arguably, the rebound in payrolls was overdue given May’s bleak reading of 72,000, but markets didn’t care as the release trimmed expectations of an extensive set of rate cuts by the Fed. The next monetary policy meeting scheduled for the end of the month is still aggressively priced as 100% likely to deliver a 25 basis point reduction, however. This week, the US data calendar remains focused around the Federal Reserve, with June’s meeting minutes released Wednesday evening after the CPI inflation release at 13:30 BST, while Governor Powell steps into the spotlight this week delivering a monetary policy testimony to the House Financial Services Committee on Wednesday. A  similar speech by Powell to the Senate Banking Committee will follow on Thursday. Despite markets aggressively pricing cuts by the Fed, guidance is still needed, so expect Powell’s comments to be closely watched.

GBP

Sterling fell 1.36% against the dollar last week after a string of poor PMIs suggested the economy contracted in Q2. The latest comments from Boris Johnson insisting he wasn’t bluffing about the UK leaving the EU in October regardless won’t help the pound, but one saving grace is that there are no further hustings scheduled until Thursday night. Today, both candidates will take part in a special event hosted by the Daily Telegraph at IET London: Savoy Place. Currently, YouGov polls point to Boris owning 74% of the Tory membership votes as postal ballots were sent out over the weekend ahead of the announcement scheduled for two weeks’ time. Outside of the Tory leadership campaign, but only just, Parliament will begin to debate actual legislation. One of the bills supposedly on the timetable, but yet to be publically confirmed, is that proposed by former Cabinet minister Dominic Grieve which attempts to block the next leader dissolving Parliament to force a no-deal in October. This will be the political highlight of the week, while Whitehall continues to flap looking for the leak of confidential memos written by Britain’s U.S. Ambassador Kim Darroch – *spoiler alert* – they don’t paint Trump in a nice light. On the data calendar, the BRC sales monitor is released tomorrow in the early hours with May’s GDP release scheduled for Wednesday.

EUR

Given the deep red ink in which German Factory orders were written early Friday morning, euro’s day wasn’t that bleak as it ended with sharp losses against USD, but strong gains against SEK and NOK. German Factory orders plunged by 2.2% in May, after the two months of marginally increasing orders that interrupted the fall in orders that had been particularly pronounced since the start of the year. Germany’s Industrial Production data for May still came in with a small plus this morning at +0.3%, but the Purchasing Manager Indices and the above-mentioned factory orders point to sharp risks to Q2 and Q3 growth stemming from the industrial sector. The European Central Bank meeting accounts on Thursday is this week’s largest data release, while markets eagerly wait to discover more detailed views of the new ECB President Christine Lagarde on monetary policy.

CAD

The loonie sold off on Friday following the June jobs report as the Canadian labour market failed to add jobs for the second time this year. Even though the employment rate shrank only marginally in nominal terms, the reluctance by the US economy to bow down to market expectations and show a marked slowdown in economic activity prompted a resurging US dollar. The Canadian labour market looks to have reached its limit as it struggles to add further jobs while wages begin to rise. June’s 3.6% rise in the hourly wage rate highlights this and confirms the Bank of Canada’s neutral rate policy position as domestic inflationary pressures mount. Governor Poloz will likely keep the status quo in Wednesday’s meeting and will need to be wary of the sensitive market pricing around central bank meetings in the press conference following.

FX elsewhere

The Turkish lira came under heavy pressure early this morning in the Asian trading sessions after Turkish President Recep Erdogan replaced Turkey’s central bank President Murat Cetinkaya earlier on Saturday. This stokes further fears about further interference of Erdogan and his alternative, low-rate favouring, economic theories in Turkey’s monetary policies. The lira so far had been among the top FX performers in 2019 as the inflation and current account deficit both fell, while the the dovish shift of the European Central Bank and the Federal Reserve provided a positive backdrop for Emerging Market FX in general. Additionally, the lira dodged the bullet of US economic sanctions on the back of Turkey’s purchase of the Russian S-400 missile system as President Donald Trump struck a conciliatory tone on the topic at the G20 meeting two weeks ago. Looking forward, risks may be on the rise again for TRY as the new CB president Murat Aysal may be pressured by Erdogan his influential son-in-law and Finance Minister Berat Albayrak to strongly cut rates to boost the economy. The next monetary policy-setting meeting is on the 25th of July and TRY may come under renewed pressure if Aysal doesn’t manage to credibly signal his independence and commitment to price stability over attempts to boost growth.