Good morning
Yesterdays release of the US ISM PMI saw another weaker than expected result which initially sent USD running for cover. GBPUSD traded to 1.2710, EURUSD to 1.0770, but that move reversed almost immediately, with GBPUSD and EURUSD trading down to 1.2635 and 1.0720 respectively, and the USD held most of those gains overnight, we are trading close to those levels now. USDJPY slipped back below 161.00 on the ISM release but within an hour or so it was trading at new highs around 161.70, still no sign of intervention by Japan.
I have seen no sensible explanation as to what caused the USD turnaround in the face of the weak ISM reports. Perhaps the news that Trump is unlikely to face trial before November for his involvement in the attacks back on January 2021 helped the US dollar.
ECBs Lagarde suggested ECB would keep rates on hold at their meeting later this month, saying they do not yet have sufficient evidence that inflation threats have passed. At least one more 25bps cut from ECB is expected this year, a pause in cuts in July looks most likely, but we could see a cut in September. Anything beyond that will be dependent on incoming data and, to some extent, rate moves from other major central banks.
RBA have continued to warn of upside inflation risks, no great surprise after last weeks higher than expected CPI release from Australia. Indeed, following that AUS CPI announcement last week I have seen a couple of major banks, such as UBS and Deutsche, look for a rate rise at the next RBA meeting in early August. There certainly seems little hope of a rate cut this year as RBA priorities remain fixed on getting inflation lower. AUD remains supported, with GBPAUD just around the 1.9000 level.
EU inflation is out this morning, where a slight drop from last month is expected, it would take a substantial shift lower for July rate cuts to be back on the agenda. We hear from various ECB officials at the Sintra forum today, including ECBs Lagarde and Feds Powell this afternoon. We will also have the first US jobs data of the week in the form of JOLTS, ahead of ADP and Challenger tomorrow, before the main event of nonfarm payrolls on Friday.
We had some exciting football yesterday, France scraped a late win over Belgium courtesy of an own goal, while Portugal got through to the quarter finals having been taken all the way to penalties by Slovenia. It’s not just England who are struggling to find their form in this tournament. We have Romania v Netherlands and then Austria v Turkey. Austria have been something of surprise so far having topped their group, can they continue this form? It’s getting exciting.
In other news, BBC reports that from the end of next year, electric vehicle owners will have to pay the standard London congestion charge. So far, electric vehicles are exempt if they pay a £10 annual fee. This change is said to be in order to relieve congestion further, however I think we all know that with such exemptions come a loss of income and over time such exemptions are removed. I’m waiting for the time ULEZ fees are charged on electric vehicles, perhaps changing it to a ‘road-usage tax’ instead. Might not be soon, but we know it will happen eventually.
Otherwise, attention is of course on the UK general election. We’ve seen little in the way of impact on GBP so far. I’m sure that previously GBP had struggled when Labour looked like getting in power, this time though it seems reasonably supported despite the very high chances of Labour getting elected with a huge majority.
Have a great day
- 09.30 ECBs Elderson speaks
- 10.00 EU HICP, unemployment
- 11.30 ECBs Schnabel speaks
- 14.30 CAD S&P manufacturing PMI
- 14.30 ECBs Lagarde speaks
- 14.30 Feds Powell speaks
- 15.00 US JOLTS job openings
- 02.30 AUS retail sales, building permits
- 02.45 China caixin services PMI
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