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A Minefield of a Day with Draghi, Carney and Yellen Driving the EUR, GBP and USD

By:
Bob Mason
Published: Jun 27, 2017, 07:29 UTC

The Dollar managed to recover from its defensive mode from early in the European session on Monday, with the Index closing out the day in the black, as

EUR/GBP

The Dollar managed to recover from its defensive mode from early in the European session on Monday, with the Index closing out the day in the black, as the markets shifted focus away from yet another set of dire stats to today’s likely comments from FED Chair Yellen, who has certainly managed to maintain her hawkishness, despite macroeconomic indicators suggestive of another weak quarter for the U.S economy.

There could be huge disappointment should Yellen hold back from providing her views on the economy, inflation and of course, her outlook on monetary policy through the 2nd half of the year, with the gains in the Dollar through the U.S session attributed more to Yellen’s likely views than Dollar data. It looks as though few are looking to bet on what’s to come later today, the markets cognisant of the fact that the June FOMC meeting was just 2-weeks ago and for there to be a material shift in Yellen’s sentiment, things would have had to have gone horribly wrong over the 2-weeks, which has not been the case.

Yellen won’t be alone today, with voting member Harker and Kashkari, together with non-voting member Williams speaking through to the early hours, Kashkari rounding off the day with what is likely to be more dovish commentary, Kashkari having disagreed with Yellen’s view on inflation in the days after the FOMC press conference, while also voting against the latest rate hike.

Kashkari is unlikely to have a material impact on the Dollar, the markets all too aware of what’s likely to come and, while Yellen will have the greatest influence, Harker’s comments will also be considered, as the markets look to gauge on where the balance of power sits within the FOMC, going into the 3rd quarter.

To make it a little more interesting, ahead of today’s commentary, June consumer confidence figures are also scheduled for release and if May’s retail sales figures are anything to go by, a further easing is likely, which will raise further doubts on whether consumer spending will be enough to drive the U.S economy into 2nd gear…

At the time of the report, the Dollar Spot Index stood at 0.09%, down 97.34%, with the Dollar likely to be relatively range bound ahead of Yellen’s speech, though we can expect some moves off the back of Harker’s commentary and the consumer confidence numbers due out earlier in the day…

Yellen’s not the only Central Bank head to be in the limelight today, with ECB President Draghi and BoE Governor Carney also scheduled to speak, which leaves the EUR and the pound on tender hooks alongside the Dollar though, with both Draghi and Carney scheduled to speak this morning, there’s not too long for the markets to wait, both having been particularly dovish of late, the only question being whether either have succumbed to the hawks in the last week or so.

With no material stats out of the Eurozone, Draghi will be in the driving seat for the EUR, while the pound will also be at the mercy of Theresa May, the pound having found support at the start of the week on news of an agreement being finalized between the Tories and the DUP, though at a cost. Focus will be on Brexit through the day as EU member states review the British government’s proposal for EU citizens residing in the UK, with the markets also having to consider what lies ahead this week, parliament also due to vote on the Conservative Party’s agenda for the coming 2-years, the last minute agreement with the DUP certainly timely ahead of Thursday’s vote.

While Carney will be the main force behind the pound, the markets will also be in receipt of the BoE’s financial stability report, which is scheduled for release shortly before Carney’s speech. We have seen dissent in the ranks and the report will give the markets an opportunity to gauge where the Bank sees the British economy heading through the 2nd half of the year. Judging by the economic data out of the UK of late, the report is unlikely to be particularly hawkish, with concerns over inflation and wage growth likely to be highlighted, not to mention rising household debt, all of which will be considered negatives for the pound, though whether the market will make its move ahead of Carney’s speech remains to be seen, Carney more than capable of catching the markets by surprise, though it was only a week ago today that Carney brought the pound back down to earth before Haldane’s Thursday rally.

At the time of the report, cable was flat at $1.27242, while the EUR remained under pressure, having given up intraday gains from the Asia session, with this week’s forecasted inflation figures for June certainly not raising the chances of a shift in monetary policy, from Draghi’s perspective at least, the EUR up just 0.07% at $1.11899.

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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