Key releases on Thursday for Sterling

Today's Highlights

Weaker data weighs on the US dollar

Key releases on Thursday for Sterling

Slowdown in China weakens the Australian dollar

FX Market Overview

The US dollar closed on a negative note last week as stocks fell with the focus once again on US earnings. Investors were disappointed with a slew of results lead by the energy sector as Exxon and Chevron both disappointed. Data was also weak as the employment cost index rose by only 0.2% in the second quarter , the lowest in over 30 years. Markets are now scaling back expectations of a rate risk from the Federal reserve this year particularly as the FOMC was more dovish than expected earlier in the week. The real test will come on Friday when Non-Farm payrolls are released. Any number below 200k will see the dollar weaken significantly as the hopes of a rise in interest rates in 2015 begin to fade. Of course a stronger number will have the opposite effect. The dollar is likely to tread water ahead of the figures giving you plenty of time to assess where you would like to leave orders to take advantage of the volatility.

Sterling has rebounded a little on the back of slightly stronger data and more hawkish rhetoric from some of the monetary Policy Committee. At least a couple have intimated that the time has now come to at least begin to talk about raising rates from emergency levels. This Thursday will be crucial for the near term fortunes of the Pound. We await the quarterly inflation report and the minutes of the last BOE interest rate setting meeting.
Most analysts are expecting at least 1 and perhaps as many as 3 members to have voted for a 25 basis point rise. Today's manufacturing data was fairly disappointing however this was ignored as we await the main event on Thursday. My feeling is that we will see more than one dissenter and that Sterling should remain supported for the rest of the week.

Over the w/e it was reported that Chinas official PMI fell to 50.0. Markit PMI fell to 47.8 which was the worst in 2 years. Additionally industrial production growth was weak. This is all weighing on the commodity currencies with the Australian dollar faring particularly badly. Australian miners depend almost exclusively on china from demand so any slowdown will have a negative effect on the currency and the economy as a whole. Tomorrows RBA meeting will now be the focus and although a rate cut is unlikely the statement will be very closely scrutinised.