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  • richard evans

USD up ahead of Jackson Hole, BRICS make it clear they mean business

Good morning

BRICS does indeed look like it is becoming a more powerful force with Saudi Arabia, Iran, Egypt, Argentina, Ethiopia and UAE all invited to join the bloc as they do indeed attempt to create a rival to the G7. The names on this list cover many of the major energy producers and could well lead to more non-USD based transactions. I find it difficult to see how all these countries could ever agree on anything, other than ‘let’s mess with the West’, but that’s a potentially powerful line up, many sharing a ‘we hate the West’ mentality. Worrying. Mind you, I’m not sure about talk of a BRICS currency. It is tough enough with the Euro and those countries are on the same continent.

Jackson Hole Symposium begins today with eyes on Powell. Equities are lower and USD has pushed higher ahead of the meeting despite suggestions from Fed officials that they may be close to the end of the rate rise cycle, perhaps even hinting at a pause in rate rises at the September meeting. Mind you don’t forget we have other central bank officials there as well. I’m interested to see what Lagarde has to say later in the day. There are clear differences emerging between ECB officials, with Nagel warning that it is far too early to consider pausing rate rises, and Vujcic saying rates may not be restrictive enough yet, while Centeno makes it clear the downside risks to the economy are increasing and the ECB should be very wary when it meets in September.

In Japan, Tokyo inflation numbers overnight were slightly lower than expected although just as we see at home, the core inflation remains sticky which perhaps explains USDJPYs reluctance to push up through the 146.50 area that has capped the upside a few times over the past couple of weeks. Elsewhere in Asia, China once again fixed USDCNY below 7.2000 when ‘reasonable expectations’ put it nearer 7.3000. China also reportedly announce new mortgage policies aimed at boosting the residential property market, and other policies aimed at giving equity markets a slight helping hand.

Turkey surprised the markets yesterday by raising rates a whopping 7.5% to 25%. USDTRY dropped sharply from 27.20 to 25.20 but has climbed back to 26.40, EURTRY went from 29.60 to 27.40, now 28.50, while GBPTRY moved from 34.80 to 32.08, now 33.31. It was quite a shock decision but whether TRY will be able to hold onto the rest of those gains remains to be seen.

All of this and I haven’t even mentioned GBPUSD. The pair now trades down at 1.2585 having finally broken the August support level around 1.2620, to hit a low early this morning around 1.2560. These are the lowest levels we have seen since mid-June and the decline has really come as something of a surprise. To prove this is much of a US dollar move, EURUSD is down at 1.0780, again a low point since mid-June, but GBP is coming off a touch worse, with GBPEUR trading as low as 1.1650 around the London open, now 1.1670.

GCSE results came in yesterday and my youngest actually did a touch better than expected, they were never going to be earth-shattering but not everyone is academic. The key for him was passing the key subjects, which he duly did, meaning he can serve his next couple of years in education without having to re-sit those. I hope any readers with kids receiving GCSE results were happy regardless of the grades they were aiming for.

Other headlines revolve around speculation over Prigozhin’s death (or otherwise), Trumps arrest in Georgia, and yet another rail strike that will hit the upcoming bank holiday weekend. With the forecast looking a bit miserable, we might as well stay in and watch some sport. Chelsea will hope for a better performance against newly-promoted Luton, while Spurs will fancy their chances at Bournemouth on Saturday. Brighton could cement their place at the top of the Premier League if they can beat West Ham tomorrow. I think this could be a very entertaining season. Rugby fans can watch the final warm-up matches before the World Cup starts in a couple of weeks.

Have a great long-weekend, hope it stays dry for you.

- 09.00 German IFO

- 15.00 US Michigan sentiment survey

- 15.05 Feds Powell speaks

- 20.00 ECBs Lagarde speaks

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