Where to Begin?

The dollar surged into the weekend as the US consumer remains upbeat, while the week ahead sees multiple monetary policy decisions & key data releases.

Previous Day's Market Highlights

The US dollar rallied to its highest levels in over 2 weeks on Friday, after data painted an upbeat picture of the US consumer. Retail sales increased at a slightly below forecast 0.5% in May, however the less-volatile control group and core measures beat expectations, both also increasing by 0.5% on a month-on-month basis. In addition to the healthy pace of sales increases, data for April was revised upward, with headline sales being revised to 0.3%, up from a previously reported 0.2% decline. Also released was June’s preliminary consumer sentiment survey from the University of Michigan, released broadly in line with expectations at 97.9, a modest softening from last month’s index reading of 100.0. Looking broadly at the two releases shows that US consumers are largely shrugging off ongoing, and escalating, trade tensions, possibly showing the market is getting ahead of itself in pricing in policy easing from the Fed. The chances of an imminent Fed rate cut moderated somewhat after the releases, though markets still see 50bps worth of cuts by year-end as a 90% chance. For the dollar, the upbeat releases sparked a rally which saw the greenback gain 0.45% against a basket of peers, peaking at its highest level this month. 
Elsewhere, data was relatively limited, with no major releases from anywhere else in the G10 FX landscape. However, the pound declined, with sterling failing to find significant support as markets remain concerned over ongoing political uncertainties stemming from the Conservative Party leadership contest. Sterling lost 0.8% against the dollar on Friday, largely as a result of broad-based dollar strength, falling to its lowest levels since 31st May. Against the euro, sterling slid 0.25%, concluding Friday by recording a 6th consecutive weekly loss. Meanwhile, the single currency also fell victim to a surging dollar, losing 0.6% over the course of the day, recording a 3rd consecutive daily decline. The dollar-bloc also struggled, with the Canadian, Australian and New Zealand dollars all losing more than 0.7% - the Kiwi falling to the bottom of the FX leaderboard, shedding 1.2%. 
In other markets, equity indices declined on Friday, as technology stocks dragged major markets lower. In Europe, the pan-continental Stoxx 600 fell 0.4%, though did record a 2nd consecutive weekly gain. Meanwhile, across the pond, the US benchmark S&P 500 lost 0.2% despite upbeat retail sales figures. Finally, oil prices gained on Friday as fears over supply persisted after Thursday’s Middle East tanker attack. US WTI crude gained 0.4% on Friday, while global benchmark Brent added 1.1% - though both blends still recorded weekly losses.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1225 1.1376 1.1194 1.60%
GBP/USD 1.2585 1.2763 1.2558 1.61%
EUR/USD 1.1205 1.1348 1.1107 2.12%
GBP/AUD 1.8310 1.8421 1.8113 1.67%
GBP/NZD 1.9340 1.9513 1.9053 2.36%
GBP/CAD 1.6875 1.7135 1.6795 1.99%

Today's Market Highlights

A fresh trading week begins with a relatively quiet data calendar - though this is not indicative of the busy week to come. Today will likely see markets continue to focus on the big-picture themes of global trade tensions, potential monetary policy easing and UK political uncertainties, though a couple of lower-tier releases from the US may pique some interest. Empire State manufacturing figures and the NAHB homebuilders survey are both due this afternoon, though neither typically has an outsize impact on price action. Markets expect manufacturing conditions in New York state to moderate slightly from last month’s 6-month high, with the index set to fall to 12.75. Meanwhile, the monthly homebuilders survey is expected to remain unchanged at 66.0. Elsewhere, labour cost figures from the eurozone are the only other notable release, expected to increase by 2.6% on a year-on-year basis, showing a moderate tightening of conditions in the eurozone labour market. Overnight, markets will look to minutes from the RBA’s latest policy meeting for any hints of further policy loosening on the horizon after June’s rate cut, with a further 25bps cut fully priced in by August. Dovish comments teeing up a further rate cut will likely see a weaker Aussie dollar. 
Turning to the week ahead, it is difficult to know where to begin with such a busy economic calendar ahead. 
In the world of central banking, policy decisions are due from the Federal Reserve (Fed), Bank of England (BoE) and Bank of Japan (BoJ). The Fed’s policy decision, due on Wednesday, is one of the most important meetings in the last few years, with markets heavily pricing in easing from the Fed and looking for policymakers to at least open the door to looser policy, likely using similar language to Chair Powell’s recent “act as appropriate” comments. Furthermore, markets will also examine the Fed’s latest dot plot, showing individual policymakers’ expectations of future interest rates, for signs of rate cuts on the horizon. A more dovish Fed would likely see the dollar weaken and equities rally, though the Fed are unlikely to match the markets’ expectations of more than 50bps of cuts this year - which, in the current economic climate, does not yet seem warranted. Meanwhile, Thursday sees rate decisions from the BoE and BoJ, with neither expected to alter policy. However, the BoE may strike a more hawkish tone, in line with recent comments, despite policymakers’ hands remaining tied by Brexit-related uncertainties. Finally, the ECB hold their annual Forum on Central Banking from Monday until Wednesday. Markets will hear from several current and former policymakers from around the world, including BoE Governor Carney and Former Fed Chair Yellen. ECB President Draghi headlines the forum however, with 4 speeches due, where Draghi may strike a relatively dovish tone, in a similar manner to June’s policy meeting, possibly weakening the euro. 
Shifting to economic data, this week’s calendar sees a number of key data releases. Inflation figures are due from the UK (Weds), eurozone (Tues), Japan (Fri) and Canada (Weds), with markets set to closely examine the figures as global monetary policy continues to shift to the dovish end of the spectrum. Also in focus will be retail sales figures from the UK (Thurs) and Canada (Fri), while market participants will continue to focus on the ongoing Conservative Party leadership election. Elsewhere, flash June PMI figures from the eurozone will give markets a useful indication of economic performance, while final CPI figures for May are likely to provide further evidence of a continued sluggish pace of price increases. Finally, markets will look over Wednesday’s 1st quarter GDP figures from New Zealand which are expected to show the economy continuing to grow at 0.6% on a quarter-on-quarter basis.

Today's Economic Calendar

Time Currency Release Consensus Previous
10:00am EUR Labour Cost Index (y/y - Q1) 2.6% 2.3%
1:30pm USD Empire State Manufacturing Index (Jun) 12.75 17.8
3:00pm USD NAHB Housing Index (Jun) 66.0 66.0
2:30am (Tues) AUD RBA Meeting Minutes