US dollar sees support ahead of tomorrows FOMC meeting

Good morning

The fact that there has been no US attacks on Iran for three days now is generally helping risk sentiment although stocks are quite mixed.  US markets were up yesterday, save for Nasdaq which showed losses, while overnight Asian markets were mixed with Japan’s Nikkei down almost 4% and South Korea stocks hitting circuit breakers as they fell over 10%, highlighting pressure on chip makers.  Oil prices remain relatively subdued as Trump made it clear he’d love to make a deal with Iran although added that he has no qualms about hitting them hard again if necessary. 

There is some focus on US, UK and EU bond yields which remain not far off recent highs which in turn are near multi-year highs.  The US dollar is a touch higher than yesterday, GBPUSD is 1.3300, EURUSD 1.1370 leaving GBPEUR stuck around 1.1700.  USDJPY is back up to the high-163’s helped by comments from Japan FinMin Katayama who said a weak yen does have merits, despite also saying once again that they are ready to act to counter speculative moves if necessary.

RBAs Bullock was speaking earlier this morning, saying that although members are willing to raise rates again they do see some signs of cooling already as had been anticipated and would rather see the full impact of recent rate rises before acting again.  This is probably enough to persuade the market that RBA will not raise rates next month, although a lot will come down to Aussie CPI data overnight.  A higher reading could put rate rises in August back on the agenda but anything lower may bring potential for short-term AUD weakness.  A rate rise later in the year, perhaps November or December, is still currently on the cards.

We have some US data on the calendar today but none of it is top-level stuff.  Aussie inflation overnight could be a market-mover.  Tomorrow brings the Fed rate announcement and although they are widely expected to keep rates unchanged, I have seen some looking for a surprise 25bps rise which would be a strong signal from Warsh that he is committed to battling inflation, and would also follow his ideas of surprising the markets rather than offering too much forward guidance.  Could be an interesting one.

Until then we’ll soak up more of the hot weather, tomorrow could be another scorcher, but spare a thought for those near Bordeaux and Madrid who are battling wildfires that have destroyed homes and caused over 300,000 evacuations.  Temperatures remain near 40°c, there is hope for some light rain on Friday but it is unlikely to be enough to fully douse the flames.   

However, as we often see in times of crisis, there are stories of people pulling together.  It is reported that many people who have not been evacuated have opened their doors to evacuees to offer them more comfort than the authorities are able to provide in makeshift shelters.  There is a lot of bad news in the press but there are still many good things that take place that can easily go unnoticed.  The world isn’t all bad.

Have a great day…

-  13.15 US ADP employment 4 week average

-  14.00 US house price index

-  15.00 US consumer confidence

-  02.30 AUS CPI

Risk sentiment improves as US halt Iran strikes

Good morning

Welcome back, I hope you had a terrific weekend.  Something remarkable happened here, small drops of water fell from the sky for about five minutes on Sunday.  Yes, we got some rain.  It didn’t last long and had little effect other than make the car even more dusty than it was before.  The grass remains brown interspersed with weeds that look far greener and healthier than the grass which is a bit frustrating but once again shows how some plants can thrive in harsh conditions.

To the markets, and the news over the weekend is that US paused attacks on Iran which has brought a bit of improved risk sentiment to the markets.  Oil price have slipped with WTI and Brent each now $84 and $87, well down from last weeks highs.  The strikes were paused in order to encourage a return to the negotiating table, however I did read that Trump had been warned of possible shortages in missile stocks which could well have impacted his thinking.  Meanwhile Saudi Arabia continue to strike Houthi targets after their recent attacks on shipping in the Red Sea.   It may be a bit early to get optimistic but for now European stocks have taken comfort from the news, opening higher this morning.

The US dollar lost a bit of ground on this improved risk sentiment.  GBPUSD say highs around 1.3360 overnight, up 40 pips or so from Friday’s close, while EURUSD climbed from 1.1370 to 1.1415, GBPEUR off a few pips but still around the 1.1700 area.   In the crosses, GBP starts the week at 1.9050, 2.3000 and 218.05 against AUD, NZD and JPY, the latter off recent highs as USDJPY slipped from 163.85 to 163.35 on the weaker US dollar. 

Plenty on the calendar for the week ahead.  German, EU and US GDP, German, Aussie, EU and Tokyo inflation, and US core PCE are all on the calendar as well as the FOMC, BoE and BoJ rate announcements.  For now the general feeling is that all three will vote to keeps rate unchanged.  BoE has previously suggested it is happy to overlook energy-led inflation for now even if this means a delayed return to target, it seems unlikely this view has changed to any great extent.  The voting pattern will be of interest, I’m thinking it will mirror the 7-2 we had last time, although it is possible we see one more vote for a rate rise.

For FOMC,  hold is also the most probable outcome after the lower US CPI readings a couple of weeks ago as well as the ongoing geopolitical risks.  As with BoE, it is likely one or two members may offer a more hawkish outlook.

We start the week today with german IFO this morning and US durable goods data this afternoon.  We’ll hear from RBA’s Bullock in the early hours of tomorrow morning, just 24 hours or so before Aussie CPI inflation figures that could sway RBA decision makers at their meeting on 11^th August. 

In other news, my Twitter (X) feed seems to be full of cyclists who video car drivers using phones or driving dangerously, and taking great delight in reporting those offences to the police.  Many of these are indeed dangerous or at least thoughtless on the drivers part and I presume regular cyclists probably experience bad driving almost every time they get in the saddle.  But I admit I did chuckle when I read of one cyclist who sent such a recording to his local police force, only to be fined £1,200 himself for riding without due care and attention.  Not every cyclist is right.

Have a great day…

-  09.00 German IFO

-  11.00 German Buba monthly report

-  13.30 US durable goods

-  04.05 RBAs Bullock speaks

Markets react to rising geopolitical risks

Good morning

Another day with lower equities, higher oil and a higher US dollar.  US/Iran war obviously still a key reason, with Trump talking of ramping up attacks and Iran now suggesting UK bases are legitimate targets.  Brent crude oil traded back above $100 yesterday evening, now sitting just below, with WTI at $91, each gaining over 15% this week. 

The higher US dollar saw USDJPY reach within a pip or two of 164, stronger than expected Japan inflation overnight and the threat of further BoJ rate rises doing little to prevent yen weakness.  Both US and Japan have said yen volatility is undesirable, raising the prospect of further intervention at some point.

However, news that the US has imposed new tariffs on some 60 or so trading partners, including the UK, EU and Japan, is also damaging global markets.  The US supreme court had ruled existing tariffs were illegal, but these new tariffs have replaced some that expire this week and are introduced under the pretence of tackling forced labour.  Clearly just an excuse to keep tariffs in place.

ECB yesterday chose to keep rates unchanged with Lagarde commenting that oil prices are likely to keep inflation above target through the first half of 2027, while risks to growth are clearly on the downside.  ECB will continue to monitor incoming data, markets still price in two more rate rises in 2026, a rise at the September meeting looks on the cards even though Lagarde says there is no clear rate path.

UK retail sales data this morning were far better than markets had expected, with upside revisions to last month as well.  While the numbers surprised many, it was more in line with our thoughts that the decent weather and world cup would support consumer spending.  GBP was unimpressed though, barely moving on the announcement, with GBPUSD in the low 1.33’s and GBPEUR just around the 1.1700 area.   

Today’s calendar is all about PMI data from EU, UK and US.  Next week brings rate announcements from Fed, BoE and BoJ.  We’ll also have inflation from Australia, Germany, EU and Tokyo, GDP from US and EU, plus core PCE from the US.  Potential for a volatile week ahead.

Before then we have a weekend to enjoy.  Weather here stays in the high 20’s, possibly creeping back into the 30’s next week, although there is one blob of rain on the BBC forecast for Sunday which suggest the garden may get a sprinkling of much needed water.  Sports fans will be a bit lost with little on the calendar other than the Hungarian F1 grand prix on Sunday.  Perhaps that rain will coincide with the start of the race.

Have a great day, and a great weekend as and when it comes…

-  09.00 EU manufacturing, services PMI

-  09.30 UK S&P manufacturing, services PMI

-  14.45 US S&P manufacturing, services PMI

-  15.00 US new home sales

-  16.30 ECBs Lane speaks