Yesterday’s poor government borrowing figures brought into question Chancellor Philip Hammond’s ability to deliver the kind of Budget markets are looking for, weakening the pound in the process.
Those hopes rose even further on Tuesday after confident comments from Federal Reserve official John Williams. He stated that he still expects another interest rate hike this year, and that the current weak pace of inflation was likely to be temporary. In addition, he claimed in the next few months the Fed would start disposing of some of its huge US$4.5 trillion pile of government assets amassed through quantitative easing.
Federal Reserve Chair Janet Yellen made two high-profile public appearances last week in front of US Senate committees. She was more cautious than had been hoped for; although she remained confident on the strength of the US economy, she was more concerned by the weakness in inflation that John Williams had been on Tuesday. Yellen even suggested that continued sluggish inflation could give the Federal Open Market Committee (FOMC) reason to slow the pace of interest rate hikes.
Friday’s data significantly dented the odds of an interest rate hike during the remainder of the year. Consumer prices grew -0.1% less-than-expected during June, climbing 1.6% on the year. Retail sales fell -0.2% instead of growing 0.1%. As Janet Yellen had only just warned about the impact of weak consumer prices on the inflation outlook, the US dollar was quickly sold.
The coming five days are extremely quiet in terms of influential data, which could see USD largely reacting to political developments, or any rumours regarding the outlook on interest rates. The most impactful data will likely be Thursday’s initial and continuing jobless claims figures, but even these would have to clock in significantly outside of their usual range to cause any real turbulence.
Phil joined the corporate foreign exchange department in 2000, and initially worked as a Senior Executive Dealer on the private client desk. In 2007, Phil moved to the corporate dealing desk as a corporate dealer and now oversees the corporate trading desk. Phil helps to manage the trading activity of the dealing desk and also works with a portfolio of corporate clients to help with their foreign exchange and risk management needs. Phil has attained FSA approval and has completed the Certificate in International Treasury Management (CertITM).
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