Just an Insurance Cut?

The dollar gains as less-dovish Fed comments point to just one cut while the RBNZ plan further easing ahead of today’s testimony from BoE policymakers.

Previous Day's Market Highlights

The dollar rebounded slightly on Tuesday, snapping its recent losing streak after less-dovish than expected comments from a number of Fed policymakers provided support. Markets reacted with most vigour to comments from über-dovish FOMC member Bullard, with the St Louis Fed President stating that it would be a good time for an insurance cut, though a 50bps July cut would be “overdoing it”. These comments, especially from such a dovish policymaker, somewhat dampened the markets’ expectations of the Fed entering a prolonged easing cycle. Meanwhile, comments from Chair Powell, as well as FOMC members Bostic and Barkin, were broadly in line with last week’s FOMC statement, albeit slightly more upbeat, affirming that the Fed will “act as appropriate” to sustain expansion. The relatively upbeat Fed comments outweighed a number of downside surprises in economic releases. Consumer confidence, a key leading indicator of both consumer spending and economic growth, slid to 121.5, the lowest level since September 2017, while both new home sales and manufacturing figures from the Richmond Fed were on the softer side of expectations. The latter, along with pessimistic figures from the New York, Dallas and Philadelphia Federal Reserves, points to contraction in the official ISM manufacturing PMI next week. Over the course of the day, the dollar gained just under 0.2%, recording its 1st gain in 5 days. 
 
Elsewhere, sterling continued to meander, with ongoing political uncertainties keeping market participants on the sidelines. The pound fell 0.4% against the dollar, due to a stronger dollar, and lost just under 0.1% against the euro - trading close to a 1-week low against the single currency. Markets largely ignored a gauge of retail sales, the typically low impact CBI distributive trends survey, falling to its lowest level since 2009 - though this may feed through into poorer hard data in the future. The euro also slid against the dollar, recording its 1st loss in 7 trading days, falling 0.3%. Other currencies also struggled as the dollar gained, with the Canadian and Aussie dollars paring early gains after Fed policymakers delivered their comments. Meanwhile, the Swiss franc slid 0.4%, snapping its recent run of gains, with rumours swirling of SNB intervention.
 
Overnight, the Kiwi dollar has remained steady despite the Reserve Bank of New Zealand (RBNZ) striking a dovish tone and displaying a more explicit easing bias. The RBNZ kept interest rates on hold at 1.5%, however explicitly stated that a lower rate may be needed in order to meet their objectives. In line with other global central banks, the RBNZ also affirmed that risks to the economic outlook are tilted to the downside, especially concerning global trade. The lack of reaction in the NZD is largely due to a significant degree of policy easing having already been priced in. Markets now price an 80% chance of an August rate cut, up modestly from around 73% before the policy decision. 
 
Away from FX, European equity markets closed unchanged, with investors remaining cautious ahead of this weekend’s G20 summit. In the US, equities fell as the chances of a prolonged loosening of policy from the Fed receded. The US benchmark S&P 500 closed 0.95% lower. Finally, oil prices were largely flat, with continued concerns over both supply and demand offsetting each other. Benchmark Brent added 0.3%, while US WTI crude shed 0.2%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1155 1.1331 1.1141 1.68%
GBP/USD 1.2670 1.2784 1.2506 2.17%
EUR/USD 1.1360 1.1412 1.1151 2.29%
GBP/AUD 1.8165 1.8422 1.8113 1.68%
GBP/NZD 1.9030 1.9456 1.9019 2.25%
GBP/CAD 1.6690 1.7135 1.6665 2.74%

Today's Market Highlights

Today sees US economic releases remain the centre of attention for markets, with May’s durable goods orders the main release. The orders data is a useful gauge of economic activity, especially in the production sector, where activity has recently shown signs of waning. Markets expect orders to have decreased by 0.1% in May, rebounding slightly from April’s 2.1% decline. The typically less-volatile excluding transport and excluding defence & aircraft measures are expected to increase at 0.1% apiece. A positive release may provide the dollar with some further support, however concerns over the health of the manufacturing sector are likely to linger ahead of next week’s PMI figures. Furthermore, significant volatility may be lacking once again as markets remain hesitant ahead of talks between Presidents Trump and Xi this weekend. 
 
Elsewhere, data is relatively limited, with no major economic releases from either the UK or eurozone. The only notable release throughout the European session will be the monthly Swiss economic expectations survey, likely to remain firmly in pessimistic territory. The US session is also devoid of any other major releases, though New Zealand business confidence figures will be on the radar overnight. 
 
Despite the relatively barren economic calendar, monetary policy will be in focus. Of primary interest will be an appearance by BoE policymakers in front of the Treasury Committee of MPs this morning, testifying on May’s Inflation Report. Governor Carney, along with MPC members Cunliffe, Tenreyro and Saunders, are due to appear, with markets on alert for any hawkish comments, in line with recent statements that rates may have to rise faster than the current market curve implies. A reiteration of the hawkish rhetoric may boost the pound, however the chances of a rate hike remain slim, with policymakers’ hands tied by ongoing Brexit-linked uncertainty. Also due to speak today are the ECB’s Mersch, likely to reiterate the ECB’s dovish stance, along with non-voting FOMC member Daly. 

Today's Economic Calendar

Time Currency Release Consensus Previous
10:15am GBP BoE Inflation Report Hearings
1:30pm USD Durable Goods Orders (Prelim. May) -0.1% -2.1%
1:30pm USD Durable Goods Orders ex Transport (Prelim. May) 0.1% 0.0%