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A week of central bank talks, deliberation and disappointing data

Published: Thursday 02 August 2018

  • Asian markets driving direction
  • Euro lagging behind US Dollar
  • Mixed signals for UK and the Pound
  • US Dollar rules the roost
All eyes, ears and mouths have been trained on central banks this week and that focus continued into last night’s US Federal Reserve and today’s Bank of England announcements. Markets and investors are desperate for some direction, as economic data has been a real mixed bag recently. Market uncertainty is tied closely to political discussions and negotiations, dropping global trading demand, rising cost pressures, increasing commodity prices, and trade war fears, not to mention Brexit and its ripple effects…

Asian markets driving direction

Asian markets have been setting the tone, with the previously perky Japanese Yen falling unexpectedly on disappointing employment and industrial data, and Chinese economic performance proving underwhelming. Both are important indicators of overall strength for the global economy, so it’s all looking a bit gloomy again.

Euro lagging behind US Dollar

Growth seems to be slowing across the Eurozone, too, according to the latest data, with continued concerns about the all-important German economy. The Euro is at the mercy of its major currency pairing, the US Dollar in the current market, stuck in a trading rut. Analysts are also busy assessing the likely impact of a ‘no deal’ Brexit on the European economy.

Mixed signals for UK and the Pound

The UK economic picture is mixed. The latest UK Manufacturing Purchasing Managers’ Index pointed to slowing growth, but growth, nonetheless, and a positive outlook for the future from the manufacturers that were asked their opinions on opportunities and performance in the coming year. Markets are watching and waiting for the Bank of England announcements on Thursday 2nd August, searching for clues to ongoing monetary policy, tone and approach from the UK’s central bank.

The Pound has been stuck in a narrow range against the US Dollar, but could strengthen in the run up to the announcements, and any meaningful rhetoric to come out of “Super” Thursday has the power to shift the value of the Pound. The predicted interest rate hike is so hotly anticipated that it may already have been priced into the markets, but a rate hike with talk of further hikes this year could boost the Pound. However, if it continues to be a cautious approach, that’s less helpful for Sterling and a fall below €1.12 and $1.30 is possible.
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US Dollar rules the roost

In the US, the economic results have once again been both positive and negative, but the US Dollar remains strong against its key currency partners as world trade discussions continue. Markets were focused on the Federal Open Market Committee (FOMC) announcement on Wednesday evening, again seeking clues to future policy and extrapolating the likely effect on the US Dollar. The USD strengthened further in the run up to the FOMC decision. However, the actual announcement of ‘no change’, although it was accompanied by quite positive rhetoric, had little effect on markets. The US-China trade war was brought into focus in the comments from a US trade representative, suggesting even higher trade tariffs on Chinese goods, and that story will no doubt continue to cause problems for global trade.

Canadian Dollar still twitchy

Meanwhile, North American neighbours, Canada, also have their fortunes tied closely to the US Dollar and multiple geopolitical factors. The Canadian Dollar is still volatile, particularly as the North American Free Trade Agreement (NAFTA) negotiations progress and the US Dollar continues to drive the CAD. That is unsurprising when 70% of Canada’s exports find their way into the US.

Today’s Google Doodle celebrates Mount Olympus, legendary home of the Ancient Greek Gods.
Today’s Thursday Thought is inspired by Ancient Greek mythology:
“Aphrodite had the beauty; Zeus had the thunderbolts. Everyone loved Aphrodite, but everyone listened to Zeus.” 
― Esther M. FriesnerNobody's Princess
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