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Sluggish Chicago Fed drags selectively on dollar

Today’s macro highlights:

  • GBP - CBI Reported Sales (June)
  • USD - Consumer Confidence Index (June)

Sluggish Chicago Fed drags selectively on dollar

The week started on something of a mixed note yesterday, with the Chicago Fed’s national activity index drawing some attention. This fell into negative territory, underlining fears that the protectionist trade tariffs are going to prove damaging to the US economy and as a result leaving the US dollar to finish the day lower against both the Pound and Euro. The story wasn’t universal however, with those tariffs still driving the greenback higher against commodity currencies. We’re certainly not there yet, but the signal to watch for is anything pointing towards US economic growth having stalled, pushing the Federal Reserve into a corner as they try to manage tariff-driven inflation.

The German IFO surveys yesterday are also worthy of note. The current assessment came in a little lower than forecast, but this was offset by an overshoot in the forward-looking expectations reading, helping drive EUR/USD to a third consecutive day of gains.

CBI reported sales are a relatively low-level indicator on the economic calendar, but given the absence of other metrics the reading will be worth watching when released at 9.30am BST. The run of good weather and the World Cup both have the potential to provide some support for the figure and although the high street’s woes remain well reported, an upbeat figure here will add weight to the idea that the Bank of England does have the required headroom to hike interest rates in August.

US Consumer Confidence for June is scheduled for 3pm BST and given the slowing of economic data from across the Atlantic in recent days, this reading will be under scrutiny. Any notable dip here will have the potential to initiate another round of dollar selling, with the key point to watch for being any suggestion that the Federal Reserve won’t be in a position to push through a further two rate hikes this year.

One other subtle point to watch today will be the appointment hearings for the incoming members of the Bank of England’s rate setting committee at 10a, BST. These are significant because the monetary policy views of Jonathan Haskel - set to replace Ian McCafferty - haven’t been disclosed. Although this appointment doesn’t take place until September, so after the pivotal August meeting, the perception is that he won’t be quite as hawkish as his predecessor. Confirmation of this could well see the pound knocked back a little. 

The pair has posted four successive days of gains now, but this is being driven by the fact many other dollar crosses are struggling, rather than support for the Pound. Any shortfall in today’s CBI reading could be the catalyst to initiate a reversion.    

Similarly, EUR/USD has now managed three days of gains, although a solid US consumer confidence reading today would have the potential to initiate something of a reversal here. There’s still that question mark hanging over when the ECB can conclude its bond buying program. 

The pair is continuing to find weakness as it rapidly approaches three month lows. Sluggish UK growth prospects will be weighing here and with limited UK economic data set to be released before the month end, reversing this trend is likely to be dictated more by emerging Euro weakness. 

Did you know…
The Sterling/US Dollar exchange rate is often referred to as ‘cable’. This is said to be a throwback to the mid-1800’s when the first under sea communications cable was run across the Atlantic, providing amongst other things a connection between exchanges in London and New York. Bad reception on the first cable meant transmission speeds were just 0.1 words per minute. Within a decade this had improved to 8 words a minute, but still below the 120-150 words a minute rate we typically speak at.