Marking Time

The euro rallies to 3-month highs as the dollar’s decline continues, though markets remain in a holding pattern ahead of the crunch G20 summit.

Previous Day's Market Highlights

Markets remained largely within a holding pattern as a fresh trading week began with market participants striking a note of caution ahead of this weekend’s crunch G20 summit, including planned talks between Presidents Trump and Xi. On Monday, the dollar continued its recent decline into a 4th consecutive day, losing a shade more than 0.1% against a basket of peers. The greenback’s decline comes as markets continue to price in policy easing from the Fed, though the dollar was also pressured by mounting concerns over the health of the manufacturing sector. The Dallas Federal Reserve’s monthly gauge of manufacturing activity fell to its lowest level since June 2016, following recent declines in similar measures from the New York and Philadelphia districts. These combined mean the ISM manufacturing PMI, due next week, is likely to dip below the key 50 boundary, marking a contraction in the sector. 
 
Elsewhere, volatility remained muted. The euro added around 0.3% over the day, hitting a 3-month high, largely due to a weaker dollar, though the single currency struggled to make a definitive break above the key $1.14 handle. The euro’s strength came despite the German IFO business climate survey, a well respected sentiment gauge, recording a 4th consecutive decline and falling to the lowest levels since November 2014, raising concerns over Germany’s economic prospects for the remainder of the year. Meanwhile, sterling traded in a quiet manner, though remained pressured by ongoing political uncertainties. The pound dipped around 0.1% against the dollar, while recovering from 1-week lows against the euro to close the session 0.2% lower. 
 
The antipodean currencies were Tuesday’s best performers, as both the Aussie and Kiwi dollars gained 0.45% despite ongoing geopolitical risks. Elsewhere in the dollar-bloc, the Canadian dollar added 0.1%, despite a dip in oil prices. Overnight, minutes from the Bank of Japan’s (BoJ) latest monetary policy meeting provided little fresh information, with policymakers affirming their easing stance with inflation remaining well below target. 
 
Away from FX, equity markets were also quiet, trading within tight ranges as market participants remained cautious ahead of the G20. The pan-European Stoxx 600 lost 0.3%, while the US benchmark S&P 500 closed unchanged. Finally, oil prices were subdued, with supply concerns (due to Middle East tensions) being offset by concerns over demand. Benchmark Brent lost 0.5% over the day, while US WTI crude added 0.2%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1190 1.1331 1.1141 1.68%
GBP/USD 1.2760 1.2767 1.2506 2.04%
EUR/USD 1.1400 1.1412 1.1151 2.29%
GBP/AUD 1.8335 1.8422 1.8113 1.68%
GBP/NZD 1.9220 1.9456 1.9053 2.07%
GBP/CAD 1.6830 1.7135 1.6674 2.69%

Today's Market Highlights

The day ahead is likely to see markets continue to strike a relatively cautious tone - especially with no major data releases due from the UK or eurozone. Therefore, focus for the pound is set to remain on any ongoing political developments, while the single currency will likely continue to test the $1.14 resistance level, while paying some interest to comments from the ECB’s de Guindos and Coeuré.
 
Across the pond, the economic calendar is busier, though data releases are likely to be overshadowed by a number of Fed speakers. On the data front, June consumer confidence figures will likely be the most impactful release, expected to dip slightly to 131.0, though this still represents a healthy level. A downturn in consumer confidence can likely be put down to ongoing trade tensions, though will likely have a detrimental impact on GDP growth in the coming quarters. Other releases include new home sales, HPI and the Richmond Fed’s manufacturing index, though these are likely to be ignored by the market. Of more interest will be this evening’s speech from Fed Chair Powell, the first time markets have heard from Powell since last week’s FOMC decision. Any comments on the monetary policy outlook are likely to be on the more dovish end of the spectrum, broadly in line with last week’s policy statement and possibly weighing on the dollar. Markets will also hear from the Fed’s Williams, Bostic and Bullard throughout the day, with any comments on monetary policy of particular interest. 
 
Overnight, the Reserve Bank of New Zealand (RBNZ) announce their latest monetary policy decision, with no change to policy expected after a 25bps cut at their last meeting. However, the RBNZ are likely to strike a dovish tone, in line with their antipodean counterparts, with further easing likely to be required due to continued sluggish inflation and prevalent downside risks to the economy. Markets (according to OIS data) see a cut as soon as August as a 73% chance. A dovish policy message will likely weigh on the kiwi dollar as markets price in the prospects of additional policy easing.

Today's Economic Calendar

Time Currency Release Consensus Previous
1:30pm CAD Wholesale Sales (m/m - Apr) 0.4% 1.4%
3:00pm USD Consumer Confidence (Jun) 131.0 134.1
3:00pm USD New Home Sales (m/m - May) 0.68mln 0.673mln
3:00am (Wed) NZD RBNZ Rate Decision 1.50% 1.50%