In a week dominated by central bank speak, the disparity between Christine Lagarde’s ECB and Jerome Powell’s Federal Reserve was clear to see. While Fed members voiced their support for another 75bp hike at their July 27th meeting, Lagarde remains unwilling to open the door to any hike greater than 25bp at their meeting on July 21st. As a result, the Euro failed to keep pace with a resurgent Dollar, sliding down through 1.04 on Thursday and Friday, before finding support. The Euro fared better against the Pound, rising towards .8680 after a set of weak UK Manufacturing numbers on Friday morning, but it failed to hold that level for very long and returned to .8620 by the close. Looking ahead, Eurozone retail sales for June will be released on Wednesday. On Thursday we will hear from Philip Lane and on Friday it will be the turn of Christine Lagarde.
Eurozone PPI @ 10am
A bad week got worse for the Pound after Friday’s Manufacturing PMI’s came in below expectations. On its own this data release is not a game changer, but it continues the trend of softening UK data, raises recession fears, and supports the dovish tone of Andrew Bailey’s Sintra speech. UK rate hike expectations have moderated significantly over the last two weeks and the Pound has steadily weakened, particularly against the Dollar. EUR/GBP briefly climbed above .8670 on Friday while GBP/USD fell below 1.20, before finding support. Looking ahead, additional PMI data will be released tomorrow and on Wednesday Bank of England Chief Economist Huw Pill will speak at a conference in Qatar.
No data of note today
Despite the continued softening of US economic data, Federal Reserve policy setters continue to voice their support for another 75bp hike, and speak with confidence about engineering a soft economic landing. The Dollar responded by strengthening last week, pushing EUR/USD down towards 1.04 and GBP/USD towards 1.20. Today, American’s will enjoy their 4th of July holiday, but later in the week the labour report for June could bring volatility. Expectations are for an increase of 270,000 in the non-farm payroll head-count, and for the unemployment rate to remain unchanged at 3.6%.