USD up on renewed Fed rate rise thinking...will Jackson Hole give us any clues

Good morning

We saw a smidge of US dollar strength yesterday which came after a Core PCE reading that was bang in line with expectations and a an unchanged Q2 GDP release.  GBPUSD traded below 1.3600 for the first time in a week or so.  EURUSD slipped to the mid 1.16’s, USDJPY ticked up to 159.40, all in all nothing to really write home about but does keep the pressure on Fed officials to consider raising rates at the next Fed meeting.  Jackson Hole begins today and I’m looking forward to hearing what Fed officials have to say regarding policy decisions.  Warsh is speaking tomorrow afternoon.

While we are looking at a possible FOMC rate rise next month, it is worth noting that both RBA and RBNZ could be on track to increase their own interest rates next month.  RBNZ is up first, a 25bps lift from 2.5% to 2.75% is on the cards with markets looking for a lift to 3% in the coming months.  GBPAUD currently 1.8920, GBPNZD 2.2855, both pairs towards the lower end of recent ranges, reflecting this renewed rate rise thinking.  AUDNZD still firm at 1.2080 after the Aussie CPI data earlier in the week.

The ongoing tensions in the Middle East that has driven energy prices higher is a major factor behind higher inflation and this new round of central bank rate rise thinking.  There have been talks held between Iran and Oman over the Strait of Hormuz which brings a degree of optimism one day, only for optimism to be dented some time later.  Iran’s insistence that any deal with Oman includes the US backing down from their blockade is the stumbling block but from Iran’s point of view, if SoH is open and operating then they have very little negotiating power. 

There has been plenty of speculation over the head of CIA’s visit to Moscow.  There is some thinking he was there to warn Putin against a strike on any NATO country after intel reports suggested some sort of limited assault was in the pipeline.   Russia is also reported to be preparing for an escalation in Ukraine amid talk and peace talks have ground to a halt.  There is even a suggestion that Russia will have to resort to using nuclear weapons, something that seems far more possible now than it did when this issue was raised by Putin almost four years ago.  Worrying times.

No great surprise that oil prices had a bit of a spike yesterday, WTI and Brent trading up to $83.25 and $88.50 respectively although as I type both have lost ground, now around $81 and $85.75.  With no sign of any concrete peace plans in the Middle East and Russia perhaps increasing military strikes on Ukraine I don’t really understand why oil prices are not higher.  I think they are pricing in far too much hope and optimism for some sort of peace deal.

In sport, Spurs managed a convincing victory over Charlton in the League Cup last night.  Many will point out that Charlton are in the Championship, but I’ve seen Spurs lose to lower teams and this is an encouraging result.  The fact new signing Savio scored on his debut was a little bonus.  Mind you, Spurs have drawn Liverpool in the next round which will obviously be a much tougher test.  Perhaps I’ll have to resort to the old ‘concentrating on the league’ excuse far too early in the season. 

England’s cricketers take on Pakistan in the second test match of the series today.  Quite how much play we see remains to be seen.  The match is at Lords, not a million miles from me, we had a decent sprinkling of rain overnight and more is forecast today and over the weekend.  England are firm favourites but 5-1 on the draw doesn’t look too stupid if play does get stopped for weather.

Finally, possibly the wrong time of year to be looking at this now the sun is going and the clouds are returning, but I saw on the news that plug-in DIY solar panels will be available to purchase from today.  They are obviously not as powerful as a professionally installed system but they are cheaper, with a pair of panels costing around £1,000 although this is expected to fall over time as competition grows.  The big question is how much they could save.  It could take some ten years to recoup the cost but given the ever-increasing cost of domestic energy it could be less time than that.  My bills are above the average and my roof isn’t really the right shape for proper panels, perhaps this will be an interesting and lower cost test to see the impact solar power could have on my bills.   Watch this space.

Have a great day…

-  12.30 ECB minutes

-  13.30 US initial jobless claims

-  00.30 Japan Tokyo CPI