All Eyes on Powell

Fed Chair Powell’s testimony is eyed for signs of a July rate cut after cable slides to levels not seen in regular trading since April 17.

Previous Day's Market Highlights

Sterling lost ground against the dollar on Tuesday, falling to levels last regularly traded in April 2017 as a number of factors exerted downward pressure on the pound. Primarily, market participants’ concerns over a no-deal Brexit have once again come to the fore, with a new Conservative Party leader set to be installed in the next fortnight who may head for a hard exit from the EU. However, Parliamentary manoeuvres to try and prevent such an outcome have already begun, with the Commons last night passing an amendment requiring ministerial statements on Northern Ireland over the Autumn - an effort to prevent Parliament from being suspended to push through a no-deal divorce. Also weighing on the pound were concerns over economic contraction in the second quarter, largely due to a lack of business investment stemming from Brexit-linked uncertainties, in addition to sterling breaking below a couple of key technical support levels, including the previous YTD low around $1.2475. Over the course of the day, sterling shed 0.4% against the dollar, a 3rd consecutive daily loss. The pound recorded a similar loss against the euro - falling to a 6 month low against the common currency. 
Meanwhile, the dollar was Tuesday’s best performing G10 currency as markets continued to unwind their bets on significant Fed policy loosening. The greenback shrugged off data showing job openings falling to a 4-month low in May to gain 0.2%, a 5th consecutive daily advance. The dollar’s advance sent the euro lower, with the single currency falling to a 3-week low below the key $1.12 handle. Commodity currencies were also weaker as a result of the dollar’s broad strength. Both the Canadian and New Zealand dollars lost around 0.3%, the former not helped by softer than forecast housing data. Tuesday’s worst performer however was the Aussie dollar, which shed 0.7%.
Away from FX, equity markets traded in mixed fashion as investors continue to adjust their expectations of Fed monetary policy. In Europe, the pan-continental Stoxx 600 shed 0.5%, dragged lower by the chemicals sector, while the US benchmark S&P 500 added a modest 0.12%. Oil prices were also subdued, though supply concerns did see prices relatively well-supported. Global benchmark Brent added a shade under 0.1%, while US WTI crude added 0.3%. 

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1100 1.1270 1.1100 1.51%
GBP/USD 1.2445 1.2784 1.2439 2.70%
EUR/USD 1.1215 1.1412 1.1181 2.02%
GBP/AUD 1.7995 1.8422 1.7852 3.09%
GBP/NZD 1.8855 1.9414 1.8674 3.81%
GBP/CAD 1.6350 1.6963 1.6326 3.76%

Today's Market Highlights

Today is set to be the busiest day of the week, with a number of releases due and focus fixed firmly on the Federal Reserve’s policy outlook. 
Markets’ primary focus will be this afternoon’s Congressional testimony from Fed Chair Powell. Market participants will be looking for clarity on the July FOMC decision from Powell, with a 25bps rate cut remaining fully priced in despite Friday’s strong nonfarm payrolls number dampening expectations of a 50bps cut. The 2-day testimony is Powell’s last scheduled appearance ahead of the FOMC’s next meeting, hence markets will be on the lookout for a clear sign of either the decision being a rate cut, no rate cut, or the FOMC waiting for more data before making a decision. Other focuses include any comments on risks to the US economic outlook (namely US-China trade tensions), in addition to likely questioning about the Fed’s independence after continued attacks from the Trump Administration. Also from the Fed, this evening sees the release of minutes from the June FOMC meeting, which will be closely examined for a further explanation of the decision to adopt an ‘act as appropriate’ policy stance. On the whole, Powell’s testimony is likely to be of more impact to the markets. Risks for the dollar appear tilted to the upside, with the market having to reprice expectations of Fed policy should Powell push back on a July rate cut. 
Monetary policy will also be in focus north of the US border, with the Bank of Canada (BoC) set to announce their latest policy decision. Rates are set to be kept on hold at 1.75%, with the BoC likely to maintain a relatively upbeat tone after a strong economic recovery from Q1’s soft patch in addition to a tight labour market and upward trending inflation. Accordingly, the BoC are likely to upgrade their forecasts for both GDP growth and inflation. Focus will also be on BoC Governor Poloz’s press conference, an opportunity to expand on the rate decision and statement. An upbeat tone, bucking the global trend of more dovish policy stances, combined with strong domestic economic momentum and firming oil prices, should see the Canadian dollar remain well-supported. 
Today’s final notable release comes from the UK, with this morning’s release of monthly GDP figures for May. The data is expected to show expansion of 0.3% MoM, though this would not be enough to make up for the economic contractions seen in March and April. Such a figure would also fail to allay concerns of an economic stagnation in Q2, especially if business investment were to remain weak. A poor GDP print is likely to weigh on the pound, while even a better than expected figure would give little cause for optimism. 
Finally, a couple of other central bank speakers are due this evening. Markets will hear from both the BoE’s Tenreyro and über-dovish Fed member Bullard, with any monetary policy remarks of particular interest. 

Today's Economic Calendar

Time Currency Release Consensus Previous
9:30am GBP GDP (MoM - May) 0.3% -0.4%
3:00pm CAD Bank of Canada Rate Decision 1.75% 1.75%
3:00pm USD Fed Chair Powell Congressional Testimony (Day 1)
7:00pm USD FOMC Minutes (June)