Month end flows into and beyond the 4.00pm fix yesterday drove EURUSD to fresh 32 month highs, while GBPUSD traded above 1.3200 and back into its immediate post Brexit range. EURGBP also pressed higher as euro demand drove the pair from daily lows around .8932 back towards its range highs just short of .8980. The USD suffered selling across the board, once again the greenback struggled following a weaker Chicago Purchasing Manager survey while another shake up in the White House overnight won’t help the broader US outlook. Risk appetite was mixed, in Europe stocks traded lower on the day, the general feeling around European earnings season has been somewhat underwhelming, while in the US stocks were mixed with the Dow trading higher while the Nasdaq and S&P both traded lower, although sentiment around US earning has been firmer.
Attention overnight was back on the US and another shakeup in the White house. New Chief of Staff Kelly apparently giving marching orders to Scaramucci, last weeks appointed Communications Director. The shifting tides of power in Washington appear to be straight out of Game of Thrones but again, our perseptive is not the sideshow, but the lack of real administrative action as a result. The healthcare debate continue to drag, there is no tax plan in place aside from the 1 page of bullet points trump outlined a couple of months ago, which just about surmised what Trump had already said in tweets, not exactly enough to build hopes on improving the US economy. The Issue for the USD has been weaker than expected inflation and today we have the PCE reading, the Fed’s favored benchmark, the core reading is expected to remain at 1.4%, anything firmer could well see a USD recovery. ISM manufacturing data for July is due across the wires as well and a slowdown is expected here. The USD is certainly under pressure and any weaker data will not help its case, in the scheme of things though today’s inflation reading trumps other data points so should we see a higher reading the dollar will almost certainly see a relief rally.
GBP remains in demand ahead of Thursdays BOE meeting. No change is expected from the BOE but markets have been looking for indications they will look to wind down some of their post Brexit easing. In recent meetings we have seen members shift to favouring rate hikes and while no change is expected on either front in this meeting, voting and rhetoric will be closely watched. Sterling has been outperforming against the weaker USD, it has struggled against the outperforming Euro so while GBPUSD sits just around post Brexit highs, GBPEUR languishes near post Brexit lows. Thursday meeting will be key for direction and with GBPUSD looking over bought, a selloff post Thursday may really dent the pounds performance against the Euro.