July 15, 2021

“Jerome Powell’s comments in the Congress caused the dollar to drop form a three-month high against the euro, as market participants continue to hold concerns about the tapering of stimulus, despite Powell’s best efforts to reassure them. Coronavirus case number hikes limited the dollar’s losses as countries in Asia, notably Japan, held reserves of the US currency.”

Sam Cornford, Partner & Head of Trading

Main Headlines

Jerome Powell has faced a barrage of questions from US lawmakers after the data revealed a high pace of inflation. The Federal Reserve Chair assured Congress that the Fed “absolutely” would take action if it saw inflation outpacing expectations too quickly and it would react if inflation consistently remained above 2%. Powell said the Fed sympathised with public concern over rising prices but maintained that an accommodative fiscal policy remained the right track for the US economy. The Fed chair faces more questions from the Senate banking panel today.

Dave Ramsden, the Bank of England Deputy Governor, said the UK central bank will have to consider tightening monetary policy earlier than expected, amid concerns that inflation continues to rise and could peak around 4%. Commenting on economic indicators, he said unemployment may end up falling lower than the central bank’s forecast in May and that wage growth is likely to rise again in a report due today. BoE did not give guidance on exactly when it would start to change its policy, but it had been expected that interest rates would not rise until 2023.

GBP

Sterling is lower against most majors overnight. Boris Johnson will promise to “level up” the UK, raising living standards and improving areas “left behind for decades.” He’s expected to say previous governments had directed too much investment toward London and the South East, but will be keen to stress that investment in poorer areas of the country will not be to the detriment of the better off regions. The Delta variant of Covid-19 is causing labour shortages of up to 20% of workforces for business across the UK economy, with employees self-isolating.

EUR

The euro is well-bid against most majors in early morning trade. The European Green Deal, Fit for 55, was due to be announced to diplomatic fanfare but instead was met with discord in the Commission, due to significant costs for businesses and citizens it imposes. The Deal introduced by Franz Timmerman aims to reduce net GHG emissions by 55% by 2030. Poland’s constitutional court became the first EU member state court to change the European Court of Justice’s ability to issue injunctions as part of ongoing dispute between Warsaw and Brussels. Angela Merkel meets with Joe Biden in Washington today, on what is likely to be her last foreign trip.

USD

The dollar is higher against sterling and lower against the euro overnight. Janet Yellen and her team don’t plan to revive the regular US-China trade talks that happened during the Bush and Obama administrations, continuing the halt put in place under Donald Trump. The Democrats are planning to impose a carbon border tax on imports from polluting nations to raise $3.5 trillion for a spending package geared towards social care, healthcare and education in the US. Facebook sought the recusal of Lina Khan, Chair of the FTC, from an antitrust case investigating the company.

Markets

Asian stocks were mixed Thursday as traders digested data suggesting China’s growth rebound is steadying as well as Federal Reserve Chair Jerome Powell’s signal that it’s still too early in the U.S. recovery to pare stimulus. Shares fell in Japan as Covid-19 cases jumped in Tokyo. Hong Kong rallied, aided by the technology sector on a report of possible cooperation between Alibaba Group Holding Ltd. and Tencent Holdings Ltd. US contracts fluctuated after modest S&P 500 and Nasdaq 100 gains on Powell’s reassurance over accommodative policy and reiteration that high inflation will likely moderate. European futures slipped. Treasury yields fell and the dollar held a retreat. Futures on 10-year Chinese sovereign bonds declined. Oil tumbled below $73 a barrel on building US fuel inventories and a potential OPEC+ agreement to increase supply. Gold was around a four-week high, aided by inflation concerns and Powell’s comments on stimulus.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: Saudi Arabia June CPI

8:00 a.m.: U.K. May unemployment

10:00 a.m.: Italy June CPI

10:30 a.m.: BOE bank liabilities/credit conditions survey

10:30 a.m.: Spain sells bonds

10:50 a.m.: France sells bonds

11:50 a.m.: France sells linkers

12:00 p.m.: BOE’s Saunders speaks

2:30 p.m.: U.S. Initial Jobless Claims

3:30 p.m.: Fed’s Powell testifies before Congress

5:30 p.m.: Israel June CPI

Germany’s Merkel visits U.S.’s Biden at White House

OPEC monthly oil market report

Corporate Events

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