Our attention remains fixed on the British Pound for the third day in a row as a flurry of data has been coming from the UK this week. Today it's the UK Retail Sales report that will provide traders with fresh data to support the case for a stronger or weaker Sterling in the weeks to come. The Pound has somewhat withstood the advance of the Dollar over the past couple of months but this robust performance was based on expectations that the BoE would raise interest rates at the end of the summer.
However, earlier this month inflation and employment figures disappointed and there's a spreading sense of doubt on whether the Bank of England will be in a position to hike rates in August as expected. There's a case to be made in favor of both scenarios - either hiking or holding back - and today's Retail Sales report will provide further evidence to support or reject either argument.
With the Pound trading around 1.3070 this morning, having bounced off its 1.30 lows, a negative reading as analysts are predicting will send prices tumbling towards 1.30 again. On the flip side, a positive consumer spending report would do wonders to fuel a move above 1.31. Having said that, even if we hit 1.30 again today we'd like to highlight that the next few weeks should be easier for Theresa May with no Brexit-related bills pending for Parliament's approval. As such, even though we hold a bearish short-term outlook for the UK currency we foresee an opportunity for prices to rebound over the medium term.
The Dollar trades sideways this morning after Powell's second day of testimony. The head of the Fed reiterated his bullish outlook on the US domestic economy but also highlighted the risks of an escalating trade war. His rhetoric didn't deviate from his earlier comments so the Dollar didn't react at all. With the calendar almost empty for the rest of the week the greenback will take its cue from Treasuries and the stock markets which points towards a continuation of the bullish sentiment.
Equities in Asia are trading with a positive bias this morning boosted by Powell's positive rhetoric and his expectations for a continued US growth. The European and the US futures are also pointing higher this morning and we have to also attribute this to the easing of geopolitical tensions. There has been a few days now that we haven't received a negative headline from the spat between US and China and this helps investors focus on the earnings season.
MARKET EVENTS TO WATCH
All times are GMT +4.