A busy week for the US Dollar ahead...
Week Commencing Monday 26th September 2016
US: Fed divided over interest rate path
A heavily divided Federal Reserve in the US left interest rates unchanged during last week’s meeting.
The lack of rate movement did not surprise markets, especially given the recent swath of lacklustre data from across the pond in recent months. Things start looking a little different however when looking at the voting intentions however, with three out of ten rate setters voting against the decision and calling for an immediate increase.
The opposition was a notable departure given previous efforts by Janet Yellen to keep dissent to a minimum. The Fed’s decision was particularly interesting given the political context in which it is currently operating in. The country is only two months away from the presidential election, and the two candidates could not be more different. The Fed’s new interest rate projection for 2017 left rates pointing to 1.125 per cent, down from 1.625 per cent in June. The medium-term forecast was at 1.875 per cent in 2018 and 2.625 per cent for 2019.
UK: Govt borrowing down again in August ... Honeymoon for Hammond
UK Government Borrowing fell once again in August, according to official statistics released by the ONS.
Figures show that the UK ran a budget shortfall of 10.55 billion last month, considerably lower than the 11.47 billion Pound deficit it ran in the same month last year. There were also no clear signs of any major impact on the public purse from last June’s Brexit vote, giving new Chancellor Phillip Hammond a set of decent figures to tuck into 3 months into the job.
Diving into the figures, the ONS said receipts from income and corporation taxes rose strongly compared with a year ago, although government debt interest payments were also slightly higher, given the increased payments owed on inflation-linked bonds.
US: In the red corner ... Donald Trump!
Hillary Clinton and Donald Trump are neck and neck as they head towards their first presidential debate on Monday.
The Republican and Democratic nominees each get 46 percent of likely voters in a head-to-head contest in the latest Bloomberg Politics national poll, while Trump gets 43 percent to Clinton’s 41 percent when third-party candidates are included. Clinton’s health continues to be an issue since she was seen in a video stumbling during a memorial service for the victims of the September 11 attacks in New York.
This contest will certainly move markets and also present an intriguing insight into the US election process! Who will win … place your bets please!!
EUR/USD traded the range last week on the back of a lacklustre Fed, with a high of 1.1326 and a low of 1.1122. With a relatively heavy European and US data week ahead, we expect another mixed bag, with Mario Draghi and Janet Yellen’s speech on Wednesday potentially the largest market movers. We expect the Euro to track down, potentially breaking back through the 1.11 range and settling around 1.10 – 1.1150.
GBP/USD’s fall from 1.3444 continued last week and initial bias remains to the downside. Last weeks breach of 1.30 signalled a new range for Cable, and we expect the rate the remain extremely susceptible to the UK GDP print later on this week. We expect 1.2850 – 1.28 to be on the cards unless we have a shock upside GBP print, then 1.30 could be tested once again.
GBP/EUR continues to track GBP/USD with the rate blasting down below 1.15 once again. With GDP the release of focus, if we see a decent print expect the rate to once again start stabilising at 1.1550 and potentially retest 1.16. Bias however remains to the downside, so unless we have a decent print expect rates to remain in the 1.14’s.
Economic Calander for the Week
We only have UK GDP to look forward to this week, and with estimates varying widely owing to Brexit, it is anyone’s guess which way it will go. We expect a 0.6 percent print for the quarter and the annual rate of growth to be reconfirmed at 2.2 percent. Expect Sterling to be mixed on the back of it.
We have a busy week for the US with New Home Sales kicking off the pack, which is widely expected to disappoint (600k vs 654k expected). US Consumer Confidence on Tuesday is an important release with markets expecting the index to drop below 100 to 99.0 from last month’s 101.1 print. Durable Goods could also disappoint with -0.4 percent expected.
GDP Will most likely save the week however with a 1.3 percent figure expected which is considerably better than last quarter’s 1.1 percent. Finally, Janet Yellen is testifying on both Wednesday and Thursday before the House Financial Services Committee on regulation and supervision.
Friday’s Inflation figures are the key economic point of note this week from Europe, with 0.4 percent on the month expected versus 0.2 percent recorded in August. This will be good news to Mario Draghi whose hell-bent on trying to avoid a perpetual “Japanese style” stagflation effect in the Eurozone.
Draghi is also due to testify before the European Parliament's Committee on Economic and Monetary Affairs in Brussels on Monday. On Wednesday, Draghi is scheduled to speak about current developments in the euro area at the German Bundestag.