Patient Trading Ahead of Fed’s Powell

Markets begin the week in sluggish fashion, continuing to digest Friday’s payrolls report while eyeing Fed Chair Powell’s testimony on Wednesday.

Previous Day's Market Highlights

FX markets began the week in a slumber, with lacklustre trading conditions prevailing as market participants continued to digest Friday's US labour market report and began to look ahead to a key week for Federal Reserve monetary policy. The dollar began the week on the front foot, continuing Friday's trend and adding around 0.15% against a basket of peers as markets continued to price out some degree of looser policy from the Fed. Other G10 currencies were similarly rangebound, with no currency budging is  significantly from its opening level. Monday's worst performers were the Swiss franc and Japanese yen, with both falling by around 0.3%. 

The euro also slid, dipping by just over 0.1% as disappointing economic data and further dovish ECB rhetoric exerted downward pressure. Data showed investor confidence falling to -5.8 in July, firmly in pessimistic territory and the lowest level since November 2014, showing that the economic outlook across the common currency bloc remains weak. The weak outlook, and scarce signs of improving conditions, mean additional monetary stimulus from the ECB remains likely. Governing Council Member Cœuré further increased expectations of additional stimulus, stating that accommodative policy remains necessary, and that the ECB could restart their QE programme if needed.

Turning to the pound, Monday was an uneventful day with little significant movement. Looking at the charts, sterling remains relatively well-supported around the $1.2505 level, despite ongoing political uncertainties keeping some market participants on the sidelines. Against the euro, sterling is showing signs of indecision having consolidated within a tight €1.1130 - €1.1160 range, appearing primed for a breakout over the next couple of trading days.

Away from FX, European equity markets closed lower, the pan-continental Stoxx 600 losing 0.1%, as concerns over the economic outlook persisted. Across the pond, US equity markets shed 0.6% as the chances of significant Fed policy easing slimmed. Finally, oil prices were mixed on Monday as demand concerns continued to weigh. Global benchmark Brent lost 0.2%, while US WTI crude added 0.25%. 

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1140 1.1270 1.1119 1.34%
GBP/USD 1.2490 1.2784 1.2481 2.37%
EUR/USD 1.1210 1.1412 1.1181 2.02%
GBP/AUD 1.7960 1.8422 1.7852 3.09%
GBP/NZD 1.8855 1.9414 1.8674 3.81%
GBP/CAD 1.6370 1.6963 1.6328 3.74%

Today's Market Highlights

In a similar manner to Monday, today's economic calendar is lacking any top tier releases. With this in mind, focus is likely to fall on a number of Federal Reserve speakers as markets continue to adjust their policy expectations. While the main event  of the week will be Fed Chair Powell's 2-day Congressional testimony, beginning tomorrow, any monetary policy comments from Powell this afternoon will be closely watched, though unlikely with the speech set to focus on bank stress testing. Other notable speakers include über-dovish FOMC voter Bullard, who called for a 25bps cut in June, in addition to Board Member Quarles and non-voting FOMC member Bostic. Comments on the policy outlook from any of the speakers are likely to revolve around a theme of 'insurance cuts' rather than a prolonged easing cycle. 

Turning to economic data, while no releases are scheduled from either the UK or eurozone, a couple of lower-tier US points may attract some attention. May JOLTS job openings figures are expected to rise to a 4-month high of 7.48mln, providing further evidence that a likely moderation in payrolls gains will be due to a shortage of available labour supply and not due to a shortage of vacancies. Markets may also glance over small business optimism figures for June, though this is not typically a major market-mover. From Canada, housing data will be in focus, with both June's housing starts and May's building permits reports due ahead of tomorrow's Bank of Canada rate decision. 

Overnight, the calendar is a little busier. Of primary interest will likely be CPI inflation figures from China, with investors likely to examine the release for any impact of ongoing US-China trade tensions. Also due overnight are consumer confidence figures from Australia, of particular interest after back-to-back 25bps RBA interest rate cuts. 

Today's Economic Calendar

Time Currency Release Consensus Previous
1:15pm CAD Housing Starts (YoY - Jun) 209k 202k
1:30pm CAD Building Permits (MoM - May) -2.5% 14.7%
3:00pm USD JOLTS Job Openings (May) 7.479mln 7.449mln