We saw the pound trade at 1.5000 to the US dollar yesterday for the first time in 7 months following a warning from Bank of England member, Gertjan Vlieghe, that a stronger pound will have an unwanted impact on the UK’s inflation. Implementing monetary policy tightening is not yet an option, he said, given that the UK needs to stabilise before this can happen. Things didn’t stay at that rate over the whole day’s trading, as it would be, as new data from Chicago regarding its PMI levels and home sales indicted a softening. Looking at the Eurozone, GBP/EUR is being driven, for a large part, by talk of further QE for Europe – hope is now for some revelation on Thursday when the ECB meet to discuss policy.
In Europe, EUR struggled as yesterday as we saw German retail data come in below expectations (-0.4%) which now means it has dipped for 3 months on the trot. What this fall may reflect is a lowered aggregate demand which will worry the ECB. We also saw the Italians concerned when monthly CPI came in with one of the worst performances for 7 years.
We’ll see a slew of data from the ECB today which will fan the deflationary flames if they come in negatively. Thursday’s ECB meeting should be telling for the how monetary policy is going to pan out in the near future – they can take the decision to either continue with forward guidance, as they have been doing, or ramp up their QE efforts. There is also the chance that the deposit rate is lowered or widen the asset pool – getting the balance right (or wrong) will have implications for the struggling single currency.
Stateside, the seems a 66% chance, according to one of the Fed’s chief strategists, that we’ll see a rate hike on hike on that side before the year is out. Despite this uncertainty, including that from the Fed fund futures, USD hit an eight month high against its major competitors.
In terms of data today, we’ll see ISM Manufacturing PMI data, then on Thursday we’ll see Janet Yellen give testimony before Congress followed by important jobs data on Friday.
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