Wednesday, July 18, 2018

Jerome Powell lights a fire under the Dollar while the Pound drops ahead of the UK CPI

Tags
  • Dollar
  • Pound
  • Stocks
  • Oil
  • UK Inflation

MORNING BRIEFING

The Pound is our top story this morning as the British currency shows rare signs of weakness on the back of the UK employment report yesterday. Sterling dropped 150 pips after the release of the labor market data that indicated that unemployment remains steady but saw a mild decline in wage growth. With prices hovering around the 1.31 area this morning the focus now is on the release of the inflation report later in the day. Investors are eager to see how price growth fares in the UK with a view to gauge how likely a BoE rate increase in August is at this time.

The odds for a rate hike next month have dropped below 80% yesterday as investors are trying to price in the elevated political uncertainty that might deter the Bank of England from pulling the trigger in August. Having said that, the case for a move in August seems rather locked in barring a very unpleasant surprise with PM May losing control of her government - which seems remote at this stage. Nevertheless, today's inflation report will affect price action and a positive printing could help the Pound recover above 1.31.

The Dollar rallies higher on the back of Jerome Powell's testimony that re-instills confidence in market participants over the central bank's rate hiking path. The head of the Fed made it clear that the central bank remains convinced about the progress of domestic growth and plans to keep raising interest rates unfazed by the deteriorating trade environment. The greenback posted strong gains across the board but our focus is on the lagging Dollar/Yen pair that only marginally hit 113. Continued Dollar strength could push the currency higher with 113.80 being the next area of attention.

Commodities remain under pressure with Gold and Oil posting losses over the past 24 hours. The yellow metal dropped rapidly yesterday in the face of Dollar's surge and prices are now trading around the $1,225 mark. This is a considerable decline and should Dollar remain in the driver's seat then we could see an extension of the decline towards the $1,217 area. Oil on the other hand continues to show weakness staying below the $68 mark and our attention falls on the $67 support as a break lower will expose the $65 area.

Equities in Asia are mixed this morning after a moderately positive day for the US markets. The European and US futures do point towards a positive opening bell albeit only marginally higher. With Jerome Powell providing fresh hawkish stimulus investors can focus on the earnings' season without worrying too much about the prospect of a global - or US - slowdown on the back of the trade dispute. The FTSE 100 bounced off its lows and the 7,700 points' level is coming into focus again while the Dow Jones continues to steam ahead towards the 25,400 points' resistance.

MARKET EVENTS TO WATCH

  • UK Consumer Price Index - 12.30pm
  • Euro-Zone Consumer Price Index -1pm
  • Fed Chairman Powell Appears Before House Panel - 6pm

All times are GMT +4.

 
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