Good morning
US dollar continues to hold recent gains as another set of jobs data comes out strong. This time it was the JOLTS job openings, a favourite of Yellens when she was the Fed but rarely a market mover, however a record number over 10 million was enough to support the dollar. Feds Rosengren and Bostic also helped, with some hawkish comments, Rosengren saying Fed should announce next month that it will indeed begin reducing asset purchases later this year, while Bostic said he sees tapering starting this year and expects rates to rise in late 2022 if economic recovery continues. He did note the risks that the Covid delta variant poses which could derail some of his expectations.
They key question on tapering is whether, once an announcement is made, we see USD pushing higher as it did back in mid-2014. EURUSD dropped from around 1.3900 to 1.3500 initially, but was down to 1.1000 after a year and continued to drop to below 1.05 over the next few months. GBPUSD slipped from a high of 1.7175 or so in 2014 to below 1.50 by Jan 2015, before further losses were made on the Brexit referendum announcement in 2016. I am not saying we will see moves of this magnitude this time, partly because I’d think if Fed were to taper asset purchases then other central banks may well also look to tighten. However it is always worth having a reminder of the size of some of the moves we have seen in recent years. More potential for EURUSD downside than GBPUSD downside I’d say. As such I still think there is room for EURGBP to go lower.
GBPUSD slipped back to 1.3835 overnight, now sitting at 1.3855, while EURGBP is currently 0.8465 (GBPEUR 1.1815). Thursdays GDP number could impact GBP, until then I think it will drift along, perhaps at the mercy of US tapering talk.
Fairly quiet day on the data front today, certainly once we get the German ZEW survey out of the way this morning. This number is widely watched but, like the JOLTS, I don’t ever remember it being a major market mover. EURUSD at 1.1740, will I be proved wrong?
It is A level results day today. No one in the Evans household is getting A levels results, but I wish the very best of luck to anyone you know who is receiving theirs. We know they didn’t sit exams but that doesn’t mean they didn’t put the same effort into getting their grades and it certainly won’t make them any less nervous.
Meanwhile, still no word on where Harry Kane will be playing next season. Spurs did apparently put a cheeky offer on Messi’s lap but it looks as though Paris might be his destination. For Spurs, it may depend on whether they can land Inter’s Martinez before letting Kane go. I very much doubt they would sell him to Man City before Sunday, given Spurs are playing their season opener against that side. The transfer window closes at the end of August so there is still plenty of time for deals to be made.
- 10.00 German ZEW
- 13.30 US unit labour cost
- 15.00 Feds Meter speaks
- 01.30 AUS Westpac consumer confidence
- 07.00 German CPI
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