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US dollar still the one to watch ahead of Jackson Hole

Good morning

I’m back after a few wonderful days away. I’ve always enjoyed being away in the UK, there is so much to offer, particularly if the weather stays dry. We were lucky last week, it was not only dry but pretty warm. Looking for something different to keep three teenagers entertained, we went for a spot of sea fishing. I wasn’t sure how well it would go down but as it turns out it was a bit of a hit. Helped that we all caught a few things, mostly plaice, I was hoping for something a bit bigger but I’ll settle for what we caught and it being a great day out.

Back to the desk this morning and the US dollar looks like it has had a few good days while I’ve been off, a little off its recent highs this morning though. Its fair to say GBP has had a rough time. GBPUSD right now is 1.3640 which tells something of a story but EURGBP is back up to 0.8585 (GBPEUR 1.1650), this time last week it was 0.8465 (1.1815). UK data hasn’t been brilliant recently with retail sales disappointing last week and lower CPI suggesting less chance of BoE needing to act quickly.

The long-awaited meeting at Jackson Hole takes place later this week. Well, I say Jackson Hole, the reality is that the event has been moved online as Covid concerns continue to dominate. Whether this means the likes of BoEs Bailey and ECBs Lagarde will be invited remains to be seen. Regardless the focus will be on any talk of tapering, there seems little doubt for now asset purchases will be reduced in the coming months, the real questions are over timing and scale. The move of the meeting to an online event highlights the fact that Covid risks remain which may encourage the markets to look for a later start to tapering. For now the feeling is for an announcement next month, with tapering to start in December. Some still think early 2022 is more likely. Fed will be keen to avoid a much stronger dollar as part of a ‘taper tantrum’ but I’m thinking it will be difficult to sound dovish while reducing asset purchases.

On the Covid issue, I am slightly encouraged by the return to normality I witnessed when I was away, and the sight of football stadiums full of fans also looks pretty good. But am I alone in thinking the press are deliberately reporting less and less of Covid? Are we really getting 60,000 fans in a football stadium and getting no increase in infection rates? I certainly hope so, but I just cannot believe it. I’m expecting infection rates to spike higher in the coming weeks as holidays, sporting events and music festivals bring large numbers of people much closer together.

Australia and New Zealand, for a long time looking as though they had managed to avoid serious Covid outbreaks, now seem to be in a race to vaccinate citizens with infection rates rising despite stricter lockdowns. Australia has seen anti-lockdown protests as total case numbers remain quite low compared to other nations. AUDUSD now 0.7150 which is pretty much 200 pips lower than before I went away. Talk of China reducing iron ore imports also not helping AUD.

Markit PMIs the key data today to watch although I still think it is more likely that broader news makes for market movements rather than specific data, That’s about all from me this morning, I should mention Spurs victory at the weekend but it was so unconvincing I might just keep quiet about it.

- 09.00 EU markit services, manufacturing PMI

- 09.30 UK EU markit services, manufacturing PMI

- 13.30 US Chicago Fed national activity index

- 14.45 US EU markit services, manufacturing PMI

- 15.00 US existing home sales

- 15.00 EU consumer confidence

- 23.45 NZ retail sales

- 07.00 German GDP

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