Healthcare Trumps Inflation

U.K. inflation fall relieves MPC

The prospect of a difficult MPC meeting on August 3rd receded somewhat yesterday as the U.K. released inflation data for June.

The headline consumer price index fell from 2.9% in May to 2.6% in June following a fall in fuel costs. Despite BoE Governor Mark Carney continually cautioning that single data releases should be looked at in context, there is no doubt that there will have been some relief.

The pound fell initially prior to the release leading to a concern over a leak but the fall, particularly against the dollar was relatively shallow. Sterling managed to remain above the 1.3000 level which has become a pivotal point.

The Euro continues its march higher towards the 0.9000 level which will encourage U.K. exporters keen to maintain their sales levels as Brexit approaches. The common currency reached 0.8904 before correcting on profit taking.

The pound is more sensitive to data releases now since tightening monetary policy is beginning to be considered in most G7 economies. The headwinds created by political concerns and Brexit will continue to weigh most heavily on Sterling but the economic outlook will drive the MPC.

Trumps healthcare reform fails again!

It may be stating the obvious but Donald Trump is getting closer to becoming a liability to the U.S. the more he tries to effect change.

Rate hikes this year have been labelled as an anticipation of fiscal and economic reform that will drive higher growth. So far, no legislation has been passed and yesterday's rejection of his healthcare plans bring a major concern.

It isn't unusual for a President to lock horns with Congress but when both Houses are controlled by his party something is clearly wrong. The reticence to vote along party lines shows a President who has lost the support of his party and Trump needs some "quick wins" to re-establish control.

The dollar has reacted badly to this latest setback with the dollar index plumbing depths not seen since last September. It fell to a low of 94.48 yesterday and the heady days of January when it reached 102.25 seem a long time ago. The Euro has been the major beneficiary of the dollar's weakness and since the common currency makes up more than 50% of the index it is obvious that they would move in tandem.

The break of 1.1500 has opened a move to 1.1750 as a staging post on the way to 1.2000.

ECB meeting to confirm what we already know.

If you put your ear to the door of the chamber where the ECB meets tomorrow you will hear the sound of back-slapping.

The members of the ECB Governing Council headed by its President Mario Draghi can congratulate themselves on a job well done. The rise in the Euro over the past six months may have been rooted in political stability but the management of the economies of nineteen diverse countries has been nothing short of brilliant.

Draghi has gradually become more forthright in his view that tightening monetary policy and higher interest rates are not the same thing. This has meant that the tapering of the Asset Purchase Scheme can take place without a rate hike which could still choke off the "green shoots" of growth being seen in the weaker economies.

A stronger currency which will hit the exports of those weaker economies, has seen inflation come under control. Employment, while still high overall with youth unemployment, in Spain in particular, causing concern, the overall position is improving. There is work to be done but the ECB should receive a "A" on its end of term report card!