GBPUSD fails to break 1.3000 so far, Powell remains cautious on rates but September still looks likely for a Fed rate cut

Good morning

Currency markets all pretty calm for the time being although as I mentioned yesterday we do have quite a few major data releases out this week.  Yesterday was light on data, the markets were really waiting for Powell to speak.  He said little that was new, the Fed don’t need to wait for inflation to hit 2% to cut rates, they are gaining confidence from the past few inflation releases, he did also make reference to the Fed’s dual mandate.  While he drew the line at sending any signal as to potential rate moves, for me these comments do point to a rate cut and I tend to agree that September is as good a time as any to begin lowering rates.  Powell did add that the ‘neutral’ rate had risen, suggesting rates will eventually settle higher than pre-pandemic levels.

Feds Goolsbee also spoke, he said the recent inflation report makes him more confident that inflation is easing in a way that supports lowering rates.  He also mentioned rising unemployment, and his concern that holding rates makes policy too restrictive.  Everything he said suggested he’d be happy to cut rates.  Feds Daly said she isn’t ready yet to cut rates despite being more confident on inflation and despite a slowing labour market.  He is happy to see more data before making a decision, again perhaps opening the door for a September move.

Despite these dovish comments, there wasn’t really anything that we hadn’t heard already and USD failed to find new sellers.  GBPUSD failed to break up through 1.3000, indeed it is now back to 1.2955, still a very elevated level but off its highs, while EURUSD is sitting on short term support around 1.0885.  GBPEUR is just about holding the 1.1900 area, although in other crosses GBP is performing well, with GBPAUD above 1.92, GBPNZD almost 2.14 and GBPCAD just short of 1.7750.

We do get US retail sales later today, these are expected to be pretty soft, as have the last couple of sets of retail sales data.  While this isn’t normally a key driver for rates, a softer reading could add to the idea of a more widespread slowdown.  We’ll also have the latest inflation report from Canada, a week ahead of the next BoC rate meeting.  BoC cut rates by 25bps at their last meeting in June to leave rates at 4.75%, but made it clear they will take decisions one meeting at a time.  They also made it clear there are limits as to how far they can diverge from the US in terms of rates, although they did add they are not currently at those limits.  However with a Fed cut pencilled in for September, we are more likely to see no change from BoC next week, todays inflation report will have to be far softer than expectations for those rate thoughts to change. 

Tonight we will have the latest inflation numbers from New Zealand.  Remember RBNZ surprised the market with a dovish tone at their meeting last week, this latest reading will be closely watched to see if inflation is indeed headed lower as RBNZ suggested.  Current expectations are for the headline to fall to 3.5%, from 4% last time.

Early tomorrow morning we will get the latest UK inflation reports.  Expectations are for a lower monthly reading but annual headline numbers to be in line with last month.  There has been some talk recently of a possible cut in rates by BoE in August, this latest set of data will need to be at least in line with those expectations for an August rate move to become more or a reality.

I did say yesterday that we were now without any major sporting events for a while.  How on earth could I have missed the oldest golf tournament in the world, the (British) Open, which begins on Thursday, just a couple of days to wait.  Thank you to those who pointed out my mistake! 

I’m hoping the weather improves for the golf.  We’d been forecast some pretty heavy rain yesterday, I thought we’d got away with it but by the evening the clouds came and the heavens opened.  It was like the middle of winter.   We have more forecast today but actually later in the week it looks like it’ll be a bit better and actually get a bit warmer, reaching mid 20’s.  I don’t think it’ll last more than a couple of days mind you.

Anyway, while we are waiting for the golf, I’m sure many of you will have had an email from Amazon informing us that Prime Day is here.  Yes, its that time where all the things you didn’t need are allegedly cheaper than they have been.  If you’re in the market for an Alexa device or a Ring doorbell, now is probably the time to get one, otherwise I’m never sure if the deals really are that good.  Mind you, I had a quick glance this morning and there are decent savings to be had on Apple AirPods, which is unusual I think.  I’d better turn it off before I end up with a robot vacuum cleaner, an air fryer, a new electric toothbrush and a shed.  None of which I knew I wanted!

Have a great day

-  09.00 ECB bank lending survey

-  10.00 German ZEW

-  10.00 EU trade balance

-  13.30 US retail sales

-  13.30 CAD CPI

-  23.45 NZ PMI

-  07.00 UK CPI, RPI, PPI