The Bank of England’s Monetary Policy Committee meets on Thursday where they are widely expected to leave the Bank Rate on hold at 0.50%, albeit via a 7-2 vote (most economists have pencilled in the next hike for August).
Recent data releases have been somewhat mixed although investor focus was distracted last week by political developments with Theresa May facing another possible rebellion if she fails to appease rebel MP’s over Brexit.
GBP/USD fell to its lowest level since June 29th on Friday at $1.3211 and has kicked off this week on the back foot.
The Dollar Index reached a new year-to-date high on Friday, bolstered by Wednesday’s FOMC policy announcement where rates rose another 25 basis points and policymakers signalled a further two hikes this year. Macro releases will also have lent some support, most notably the stronger-than-expected-readings for CPI on Monday and retail sales on Thursday.
Gains were trimmed slightly on Friday as trade tensions between the US and China resurfaced. China has announced it will apply tariffs of 25% on 545 US goods worth $34 billion from July 6th, the same days US tariffs apply.
FOMC members will take to their respective podiums this week following the policy announcement with Dudley, Bostic and Williams due today.
Data wise, housing starts are out tomorrow, existing home sales on Wednesday, Philly Fed on Thursday and Markit PMIU on Friday.
Investors will be watching the European Central Bank closely this week after Thursday’s policy shift prompted a sharp drop in the single currency. The bank announced that although it will end its bond-buying program in December it will keep interest rates on hold until at least summer 2019.
ECB speakers are in abundance this week with Draghi due to speak later today also, on Tuesday and Wednesday alongside Praet, Lautenschlaeger and Coeure.
EUR/USD has begun the week on the back foot, falling to a low of 1.1566 this morning versus Friday’s two-week low at $1.1543.
Data wise, we await consumer confidence on Thursday and Markit PMI on Friday.
Despite coming close, USD/JPY failed to make a mark on the 111 handle last week. Safe haven demand kept the Yen supported and will have capped gains although the Japanese currency did fall briefly on Friday after the Bank of Japan downgraded their inflation assessment in their policy announcement.
We have seen a modest bid in Japanese Yen to start the trading week with USD/JPY edging lower this morning to around 109.5.
Looking ahead, Friday’s CPI data will likely be the main data focus while we also expect comments from Bank of Japan Governor Kuroda on Wednesday and Board Member Fumo on Thursday.
The Swiss National Bank meets on Thursday although no fireworks are expected with SNB Chairman commenting earlier this month that it is too early to raise rates.
USD/CHF came within a few pips of parity on Friday at 0.9990 after rising sharply on Thursday amid the broad US Dollar and risk rally. EUR/CHF failed to follow suit meanwhile given the dovish message from the ECB.
The Australian Dollar finished last week as one of the weakest G10 currencies, weighed by a triple whammy of cautious RBA commentary, soft labour market data and rising trade tensions. AUD/USD took another small leg lower overnight to a fresh multi-week low at 0.7434 although it is off its worst levels now.
Investors will be wary of further RBA rhetoric this week with the RBA minutes out tomorrow and RBA Governor Lowe due to speak on Wednesday. Data releases are limited meanwhile with house price data tomorrow and leading index on Wednesday.
Last week was always going to be a difficult one for the Canadian Dollar following the lack of consensus at the G7 summit and Trump’s twitter tirade at Canada and PM Trudeau.
NAFTA related headlines provided little reason for optimism during the week and losses were compounded on Friday after Canadian manufacturing sales posted a wide miss.
USD/CAD hit a one-year high on Friday at 1.3203 but has slipped back below 1.32 this morning. Investors will, as always, be on the lookout for any progress in NAFTA talks ahead of Friday’s CPI data.
NEW ZEALAND DOLLAR
The New Zealand Dollar was short of domestic impulses last week where we saw NZD/USD drop to a two-week low on Friday at 0.6928 amid a broad US Dollar rally. It was the stronger of the antipodean currencies however with its Australian partner weighed by rising trade tensions towards the end of the week.
The Dollar saw some minor downside overnight after a soft growth outlook from the NZIER but this proved short-lived with NZD/USD now flat for the day at around 6.6940.
Data wise, Wednesday’s GDP data will be the focus and is expected to confirm a modest slowdown in the New Zealand economy.
The Krona advanced last week with EUR/SEK reaching its lowest level since March at 10.095 after Swedish CPIF rose to +2.1% YoY in May from +1.9%. Gains in the Krona were trimmed on Friday while EUR/SEK has kicked off this week on the front foot at just above 10.23.
Looking ahead, unemployment figures are out tomorrow while consumer and manufacturing confidence follow on Wednesday. It will also be worth watching the Norges Bank decision on Thursday.
The Norges Bank meet this Thursday and policymakers are widely expected to repeat that “the key policy rate would most likely be raised after summer 2018” (most economists have pencilled in September). The risk of a dovish surprise should not be ignored however given last week’s CPI miss although a stronger Norges Bank regional network survey would have provided some balance.