Nieuws en Analyses


Sterling battled with the broad dollar strength yesterday but ultimately fell victim to a fresh round of pressure this morning. Today, Brexit fiscal plans were released by the new chancellor, Sajid Javid, where another £1.1bn is being released to pay for no-deal infrastructure. This includes an extra 500 border force officers, storage of medical stockpiles, and improved infrastructure for Kent motorways. The fiscal spending doesn’t stop there, a further £1bn contingency fund is also set up for the inevitable cost overruns that will come in the coming months; best-laid plans and all that. Pivoting away from Brexit, only marginally, the Bank of England will meet today for the first meeting under the Boris Johnson administration. The central bank previously used a smooth and orderly exit of the EU as the base case for their economic models as they try to abstain from indulging in the political debate, but given the new administration change, Carney will be heavily questioned on whether the Bank has changed its baseline political outcome. The recent sell-off in the pound and the impact it will have on inflation in the UK may also make an appearance in the press conference, especially with the release of a fresh inflation outlook. The bank is widely expected to keep rates on hold at 12:00 BST.


The single currency held the lines reasonably well during the morning as mediocre Q2 Gross Domestic Product and slightly soft July inflation readings came in, but got absolutely hammered against the dollar during the evening after the hawkish Federal Open Market Committee meeting. This then had EURUSD drop further to levels not seen since May 2017. The first reading of Q2 GDP came in as expected at 0.2%, which is below the 0.4% estimated potential quarterly growth pace for the Eurozone. The story behind this has been quite clear for a while; (export-oriented) manufacturing activity slows down, while the services sector manages to create some minor plusses on the back of solid domestic demand. Flash July Consumer inflation meanwhile fell to 0.9%, lower than the 1.0% expected and below the 1.1% seen in June. Taken together, yesterday’s figures confirm that the question for the next European Central Bank meeting in September is not whether the ECB will take dovish policy action, but more how big the monetary guns will be that the ECB is going to bring out. Today the steady data stream of relevant Eurozone data continues with Final Manufacturing Purchasing Manufacturing data for individual Eurozone countries, which should give us an updated Eurozone-wide snapshot of the sector at 9:00 BST.


The US dollar went on a tear last night as Jerome Powell stared both Fixed Income markets and President Trump in the eye at the press conference and metaphorically said “I’ll see you in 3-months”. By claiming that last night’s rate cut was a “mid-cycle adjustment” and that it wasn’t the start of a lengthy cutting cycle, markets sat back and took a long hard look at recent pricing. US 2-year yields rallied on the prospects of higher benchmark rates for longer, pushing the dollar into positive territory across the board. The dollar DXY index hit a high not seen since mid-2017, and the dollar bulls have returned this morning to keep the greenback bid. Arguably, this was a highly forecastable event, as analysts also rejected the fixed income market pricing as the data didn’t support 3 rate cuts by the Fed this year. Low inflationary pressures allowed Powell to cut rates pre-emptively to “sustain the expansion” last night, meaning future inflation releases and dynamics will begin to have heightened market impact; especially in a low inflation environment. Powell’s stance abruptly brought the attention of Trump’s ire, with the President tweeting about the Fed threatening to unravel the good work he has managed thus far. Trump has played the situation like a fiddle, casting blame on the Fed should the economy begin to tank, but allowing him a victory lap should the Fed cut more extensively – a win-win situation. Today, it will be hard for markets to look through the rose-tinted glasses and opt for a currency other than the US dollar, with only AUD sitting flat on the day in the G10 space thus far.


The loonie was heading for a strong performance against the US dollar yesterday after a strong May GDP reading, up until the man with the hammer came in the evening, cloaked in the Federal Reserve’s most hawkish garb. May’s GDP saw the economy grow faster than expected following bleak Retail and Wholesale Sales data released in the past few weeks for May. On a rolling quarterly basis the Canadian economy grew 0.7%, highlighting the rebound in data from Q1 to the delight of Poloz and co. Service producing industries struggled to match the momentum of the manufacturing sector, which picked up the mantle to drag the Canadian economy into positive surprise territory. Annualised growth levels now sit marginally above the BoC forecast for 2019 at 1.4% YoY, with the Q2 YoY figure tracking close to 3%. The release supports the Bank of Canada’s neutral stance over the coming periods, which is likely to become increasingly more relevant as monetary policy stances continue to dominate FX price action.