Market Brief: the US Dollar came under pressure on Friday after softer-than expected inflation data for July dampened expectations for another Federal Reserve interest rate hike this year.

The US CPI index rose 0.1 in July, against an expected 0.2% median estimate. The bias is still negative on the US Dollar as the markets are not convinced that the Fed will raise interest rates again any time soon. Further political tensions heightened over the weekend as deadly violence took place at a white supremacist rally in Virginia. Donald Trump came under fire as he did not explicitly condemn far-right groups. This has resulted in slight dollar weakness pushing GBPUSD back above 1.3000 and EURUSD back above 1.1800.

Fundamental data returns this week. Starting with the UK, July’s inflation reading is published on Tuesday morning. We expect to see this holding steady at 2.6% whilst factory gate (PPI) inflation data will provide further clues on how much further inflation has to run; we suspect headline inflation is now not miles off its peak. On the consumer front, the July retail sales figures from the ONS are due Thursday morning. We expect to see sales up 0.3% month to month, thanks to a relatively solid BRC survey. Following the solid 0.6% increase in June this, for now at least, would point to households defying the household cash squeeze and continuing to spend away. Finally on the domestic stage, labour market figures will not go unnoticed with central bankers globally continuing to ponder the lack of upward momentum in pay growth, despite low levels of recorded unemployment.

German Q2 GDP is released tomorrow morning, the QoQ figure is expected to show a 0.1% uptick to +0.7%, with the YoY figure expected to increase by 0.2% to 1.9%. Eurozone GDP scheduled for Wednesday is expected to stay in line with the ‘flash’ estimate of +0.6%, 2.1% YoY. Final eurozone inflation figures for July are released on Thursday – the ‘flash’ release saw the ‘core’ reading advance again to reach a year-on-year rate of 1.2%. Shortly after, the ECB release their latest meeting minutes - investors will be closely monitoring the release hoping for further guidance on monetary policy.

Stateside, the minutes to the 25/26 July Federal Open Committee Meeting will be a key focus. One question is whether these show a Fed increasingly divided over the path for rate rises here forward and whether any further information is provided on the planned unwind of QE holdings, which we expect to start soon after an announcement at the 20 September FOMC. The US economic calendar is also action packed, with the earliest of manufacturing surveys for August due (the Empire State and the Philly Fed) alongside the preliminary August Michigan consumer sentiment measure and July’s retail sales numbers. One question for the consumer backdrop is whether we are seeing any squeeze in confidence from the latest political chaos in Washington. There are also several housing market releases due too in the shape of the NAHB index and July’s housing starts and permits figures.

The day ahead

Overnight Japan released Q2 GDP figures. These showed the Japanese economy outperforming expectations over Q2 with an annualised growth rate of 4.0% recorded, beating the 2.5% (saar) consensus and pushing Japan to its sixth consecutive quarter of growth. China’s industrial production figures pointed to a moderation in the year-over-year industrial sector growth pace at the start of Q3, with output up 6.4% y/y down from June’s 7.6% and short of the 7.1% consensus. It was the same story with retail sales too which were recorded at 10.4% y/y. Consensus had been for 10.8% y/y whilst in June the year-over-year growth pace had stood at 11.0%. This morning sees the release of EU industrial production data at 10am. Expectations are for a negative monthly reading of -0.5% and a decline from 4.0% to 2.8% in the YoY figure.

Thought of the day

I had a pretty ‘intents’ experience this weekend as I took my 3 and 5 year old camping for the first time, thankfully the weather could not have been better and a number of the other dads who I went with had done this thing before. Now for me camping involves a tent and a tiny gas cooker and reheated beans, times however have moved on. There were blow up tents (no poles required) automatic coffee machines with integrated bean grinder and fully functioning fridges. Being a bit of a purist I was initially disappointed with these, but as the weekend wore on I begrudgingly accepted they made the whole experience a lot easier. If your field of vision in FX is pegged to the old ways of hedging, give us a call today to broaden your horizons and help make your FX experience less ‘intents’!