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The Dollar Takes a Cue from Crude with the Pound vying for the Spotlight

By:
Bob Mason
Published: Jun 22, 2017, 08:32 UTC

The pound has continued to dominate the attention of the markets through the week, with contradictory sentiment from members of the Monetary Policy

Midday Forex Snapshot

The pound has continued to dominate the attention of the markets through the week, with contradictory sentiment from members of the Monetary Policy Committee causing confusion amidst the current political storm that is passing over Westminster.

BoE economist Haldane spoke on Monday of how close he was to vote in favour of a rate hike last week, which would certainly have made things interesting, leaving the vote 4-4. More importantly is the fact that Haldane is looking ready to join the dissenters, which are beginning to take control of the MPC, affirming Carney’s view that members of the Committee’s tolerance to surging inflation is coming to an end.

The hawkish commentary overshadowed the Queen’s speech on Wednesday, though with Kristin Forbes on the way out, it will come down to whether incoming LSE professor Silvana Tenreyro will err on the side of caution early on or join in with the increasing level of dissent within the Committee.

In previous interviews, Tenreyro has been open about her pessism over Brexit and has suggested that monetary policy decisions will need to consider the outcome of Brexit negotiations, suggesting that even with Hadlane joining the dissenters, the vote will likely remain 5-3 in the next meeting.

Had Kristin Forbes been present for one more decision and Haldane joined in on vote in favour of a rate hike, a 4-4 split would have left the decision in the hands of the BoE Governor and the markets know the outcome of such a decision…

At the time of the report, the upside from yesterday’s surprise hawkish commentary has begun to ease, with cable down just 0.01% at $1.2668 at the time of the report, the only support for the pound coming from hawkish MPC commentary, other drivers suggesting that further weakness lies ahead, economic indicators a negative, with Brexit negotiations unlikely to be favourable for the pound or the British economy over the near-term

Macroeconomic data out of the UK this week is limited to today’s CBI Industrial Trend Order figure for June, which is forecasted to weaken, adding further pressure on the pound

A glimmer of hope for those looking for the pound to bounce comes from the Queen’s speech on Wednesday, Dodds telling the commons that the DUP will vote to strengthen the union, though offering Holyrood a right to vote on Brexit will be of concern, Scotland having been particularly vocal on a desire to remain a part of the EU as Britain moves to leave.

Across the pond, things are not going too much better for the Dollar with sliding oil prices weighing on market sentiment towards inflation over the near-term, the FED Chair’s reference to one-offs contributing to weakening inflationary pressures seemingly justified, but with the outlook for oil remaining bearish, such one-offs are unlikely to fall away anytime soon, raising doubts over whether the FED will be able to make a move in September, or even December for that matter. Perhaps Russia and the Saudis have more influence on the direction of the Dollar than Trump would perhaps like to concede, with Dollar weakness amidst easing inflationary pressures attributed not only to weak domestic consumption, but also the continued slide in oil prices, resulting from Russia and OPEC’s unwillingness to make deeper production cuts in support of price stability.

At the time of the report, the Dollar Spot Index was down 0.04% at 97.524 with macroeconomic data today limited to the weekly jobless claims figures, which will be of influence, though with FOMC voting member Powell scheduled for release this afternoon, any comments on monetary policy will likely be of greater influence, central bank commentary certainly driving the majors through the week.

The slide in oil has certainly got the markets thinking with European equities opening up in the red and with Dow futures pointing to further declines at the time of the report, supporting appetite for the Yen and gold, with the Yen up 0.28% against the Dollar and gold set to make a continued recovery, spot up 0.43% at $1,251.88, a closer inverse correlation between crude oil prices and gold likely to prevail as bond markets begin to take crude as the barometer for the outlook on U.S inflation and ultimately monetary policy.

While the Dollar and the Pound struggle and likely to continue to face pressure, there was some good news for the EUR, with the release of the ECB economic bulletin delivering a favourable outlook to Eurozone growth for the 2nd quarter, with the ECB also talking up global growth in the current quarter. At the time of the report, the EUR was flat against the Dollar, recovering from an intraday low $1.1155, the ECB Economic Bulletin a positive and likely to continue supporting the EUR ahead of tomorrow’s June prelim private sector PMI figures scheduled for release tomorrow.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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