Today’s macro highlights:
Quiet start to a big week for the Pound
Friday’s US GDP reading may have come in some way below the figure telegraphed by President Trump, but it did little to knock the dollar’s fortunes. Major currencies have started the week on a very quiet note, something which can be symptomatic of quieter summer markets. Although the accompanying lower volumes do pave the way for heightened levels of volatility and this is something that will be very much in focus for the Pound later this week. On Thursday, the Bank of England will make its latest call over interest rates. Expectations are running high that a quarter point will be added on Thursday, but failure to deliver could send the Pound tumbling dramatically as a result.
UK Consumer Credit data is due for release at 9.30am BST. This is expected to come in unchanged month on month but the line to watch for would be any notable reduction. If there are indications that consumers are becoming increasingly wary of borrowing, then this will add weight to questions as to whether the UK economy can sustain higher borrowing costs. Although there’s growing demand for the Bank of England to undertake some policy tightening, the risk remains that what growth we do have could be stubbed out. Any suggestion that the rate hike won’t be delivered will result in downside pressures for Sterling.
1pm BST sees the release of German inflation and as the Eurozone’s economic powerhouse, this will be under scrutiny. The market is looking for an unchanged 2.1% but anything notably below this has the ability to call into question the timing of the ECB’s winding down of QE. If there’s an indication that this needs to be extended into 2019, it will also have the potential to defer the timing of rate increases from the ECB, which currently aren’t expected before next Autumn. Risk for the Euro is likely weighted on the downside here.
We have a relatively quiet day across the Atlantic but the Pending Home Sales data due at 3pm BST will be worth watching. Expectations are for an uptick here, but Friday saw the PCE - Personal Consumption and Expenditure - figure come in below expectations. If there are signs of consumer fatigue creeping in, then we could see questions asked once again over the impact of the Federal Reserve maintaining this relatively quick pace in terms of rate hikes.
The pair has been trading in a very narrow range of about half a cent since Thursday evening. The US GDP print shortfall provided some temporary support, but the Pound still seems short of supporters. As noted, the quiet summer season can have this effect, although volatility also has the potential to be exaggerated.
Again, the pair is looking relatively quiet in early trade although the German inflation print has the ability to inject some life into the Euro.
The Pound may have recovered from the threatened test of fresh lows for the year just over a week ago, but that rally ran out of steam relatively quickly. Failure for the Bank of England to deliver on Thursday would leave Sterling open to some heavy selling.