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Following the pivotal events last week for the US dollar, it’s time for Europe to take over. The greenback has sunk to fresh 10-month lows following the latest spate of weaker-than-expected macroeconomic data, but can the European Central Bank continue to take the gloss off the world’s reserve currency?
On Thursday the Governing Council of the ECB will present their latest policy update. While policymakers are expected to leave rates unchanged, it is the tone of the accompanying policy statement (12:45pm) and the subsequent press conference from ECB President Mario Draghi (1:30pm) that will likely drive sentiment for the euro.
Coming after several weeks of more hawkish chatter from officials, including from Draghi himself towards the end of June, markets are expecting the central bank to signal the dialling back of policy or, at the very least, a potential time frame for doing so. However, having seen Inflation confirmed slipping to 1.3% in June, will policymakers choose to take the less hawkish course of action? If so, the euro
Sterling too has capitalised on the weaker USD, as well as pricing in the potential for Tuesday’s Inflation prints (CPI, RPI, PPI, HPI; all 9:30am) to influence the Bank of England’s thinking ahead of its upcoming meeting in a fortnight’s time.
Governor Mark Carney has so far been reluctant to address rising inflation by voting to raise interest rates or remove some of the other accomodative policy measures the BoE has put in place. However, a stronger than expected reading which takes inflation through the 3% barrier, a whole percentage point above the Bank’s 2% target, could force the governor to join the three policymakers who voted to raise interest rates in June. While the BoE do not meet until 3 August on its quarterly ‘Super Thursday’, Tuesday’s release could be pivotal for the UK currency over this quarter.
Retail Sales (Thursday; 9:30am) will also provide another key data-point for currency makers, potentially at odds with the inflation print. A weak print, continuing to retreat from what appears to be an anomalous April reading, may strike a chord with dovish members who look to keep the tap of easy money flowing through into consumers’ pockets. Expect Sterling to track which of these releases markets deem to have the most importance for the BoE’s policy.
Both currencies will be also subject to further fluctuations as Brexit talks continue in Brussels, although the absence of Brexit minister David Davis, who left shortly after meeting counterpart Michel Barnier on Monday, may be noted for its potential implications for PM Theresa May’s leadership, rather than the task of negotiating the UK’s leaving bill.
Drivers for the US dollar this week are few and far between and, as a result, the performance of the greenback is likely to be reliant upon the performance of its peers. The Federal Reserve is now observing its customary blackout period before policymakers convene next week (26 May), which sees all members restricted from speaking at events.
US macro data consists of the NAHB Housing Index (Tuesday, 3pm), Building Permits and Housing Starts (Wednesday; 1:30pm), and the Philly Fed Manufacturing Index (Thursday; 1:30pm).
Key data this week (Sign up here to receive our daily live macro-calendar)
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UK Economic Announcements
09:30 CPI, RPI, PPI, HPI
Intl Economic Announcements
10:00 ZEW Surveys (DE & EZ)
13:30 Imports & Export Prices (US)
15:00 NAHB Housing Price Index (US)
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Intl Economic Announcements
10:00 Construction Output (EZ)
12:00 MBA Mortgage Applications (US)
13:30 Building Permits & Housing Starts (US)
15:30 Oil Inventories (US)
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UK Economic Announcements
09:30 Retail Sales
Intl Economic Announcements
02:30 Unemployment (AUS)
04:00 BoJ Monetary Policy Update (JP)
07:00 PPI (DE)
12:45 ECB Monetary Policy Update (EZ)
13:30 ECB President Draghi Press Conference (EZ)
13:30 Philly Fed Manufacturing Index (US)
13:30 Weekly Jobless Claims (US)
15:00 Consumer Confidence (EZ)
15:00 Leading Indicators (US)
UK Economic Announcements
09:30 Public Sector Net Borrowing
Intl Economic Announcements
05:30 All Industry Activity Index (JP)
13:30 CPI, Retail Sales (CAN)
18:00 Baker Hughes Rig Count (US)
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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
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