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  • richard evans

Powell cautious, US dollar lower

Good morning

Welcome back after a lovely long weekend. Can’t say the weather was stunning, indeed there is very much an Autumn feel to conditions as we enjoy our last day of August and head into September. I am hopeful that our slightly disappointing summer will mean we will now have a milder couple of months.

Feds Powell failed to ignite the tapering spark on Friday, taking a more cautious line and USD weakened as a result. GBPUSD now up at 1.3790, highest levels for a couple of weeks, while EURUSD fares even better at 1.1830, highest level since early August. This leaves EURGBP at 0.8575 (GBPEUR 1.1670). towards the stronger end for EUR with 0.8600 (1.1630) certainly well in range. The relative strength of EUR is a little surprising given ECBs Rehns comments that ECB will exercise caution when reducing stimulus to avoid making mistakes back in 2011 when rates were raised too early. As such they may hold off any decision on reducing PEPP in September. Germany political situation getting interesting with Merkels party losing ground again to the Social Democrats.

Feds Mester was on the dovish side, she feels inflation criteria for a rate rise has not been met and the US labour market is not yet at capacity She does still see Fed starting to reduce asset purchases later this year but adds that monetary policy will still be highly accommodative even after any asset purchase reduction. US nonfarm payroll numbers are released this Friday, likely to be watched even more closely than usual

AUD has performed reasonably well, trading up to 0.7340 against USD although it is lower against NZD with AUDNZD at 1.0385, having reached down to mid-1.03s at one stage overnight. No real reasons for the push higher in NZD as yet.

Covid news doesn’t look good, with US cases pushing higher and EU looking to stop non-essential travel due to the rise in US cases. South Africa believe they have found a new Covid variant that not only seems easily transmissible but also has a knack of evading antibodies. That doesn’t sound good. My eldest is back from Reading festival and so far has been testing negative on his lateral flow tests, but we are watching closely. It is surely impossible for 100,000 people to be crammed together without some passing of infections. As I have said before, with football stadiums full and people getting together more, we must surely be prepared for a reasonable spike in infection rates.

US are pretty much out of Afghanistan, all looks like a complete mess and an utter waste of time, money and lives. Whether that is fair is up for some debate but the well-used phrase that the US and its allies have spent 20 years, billions of dollars and over 2,000 lives to replace the Taliban with the Taliban sums it all up reasonably well. While a lot has been written about how badly the departure of Afghanistan was handled, worth noting that the US evacuated over 120,000 people from the country.

Of course I have to mention football, given Spurs are flying high at the top of the Premier League with three wins out of three and no goals conceded. We’ll be up there for at least another week or so as we head into a break for international football. England play Hungary on Thursday.

A reasonable calendar today but many people are still away and there remains something of a holiday feel as we move into the last week or so of school holidays.

- 09.00 German unemployment

- 10.00 EU CPI

- 10.00 ECBs Knot, Holzmann speak

- 13.30 CAD GDP

- 13.30 ECBs Lane speaks

- 14.00 US house price index

- 14.45 US Chicago PMI

- 15.00 US consumer confidence

- 00.01 UK BRC shop prices

- 02.30 AUS GDP

- 02.45 China caixin manufacturing PMI

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