July 16, 2021

“This month’s solid dollar performance, driven by strong data and a shift in interest rate expectations, is holding other majors back, with market participants nervous about shorting the greenback. However, macroeconomic indicators can challenge that setup – today, it is the New Zealand’s dollar that jumped after inflation breached the central bank’s target range.”

Sam Cornford, Partner & Head of Trading

Main Headlines

Joe Biden said his Covid-19 advisers are weighing when to lift prohibitions on travel from Europe, after German Chancellor Angela Merkel raised the issue in a White House meeting on Thursday. “It’s in process now,” he said at the press conference, promising to have an answer within several days. Biden and Merkel also discussed the Nord Stream 2 pipeline, acknowledging their differences over the project. They agreed that the US and Germany will not allow Russia to use the pipeline to threaten neighbouring countries.

The House of Lords economic affairs committee said on Friday that the Band of England had failed to justify its quantitative easing policy. According to the committee, which includes former BoE governor Mervyn King, the central bank needs to justify its position that the rise in inflation is temporary. Lord Michael Forsyth of Drumlean, the committee’s chair, said that the bank “has become addicted” to QE. The committee’s report is based on interviews with experts, including former central bankers from the Federal Reserve, the European Central Bank the Bank of Japan and BoE.

GBP

Sterling is stronger against the dollar and unchanged against the euro this morning. The NHS Covid-19 app sent more than half a million alerts last week telling people to self-isolate, a tenfold jump in a month to a new all-time high. Elsewhere, the National Audit Office has criticised the government over its failure to work with local authorities in England on reaching net zero, blaming a “lack of clarity” around council responsibilities. The UK has put the current estimate of the Brexit financial settlement at £37.3bn, £3.5bn smaller than that published by Brussels last week.

EUR

The euro is lower versus the dollar and unchanged against the pound overnight. The European Central Bank may limit changes to its monetary policy to the wording at next week’s meeting, leaving decisions on future bond-buying until the economic outlook clears. 52% of respondents in a survey predict the bank will spend the entirety of its 1.85 trillion-euro pandemic program, up from 40% in June. They see monthly purchases falling by 5 billion euros to 75 billion euros in August, when there’s less liquidity, before buying slows more sharply in October.

USD

The dollar is higher against most major currencies in the early morning trade. Pressure is building on the US Securities and Exchange Commission to finalise regulations to de-list Chinese companies that fail to comply with American auditing rules, after lawmakers discovered the agency might not begin enforcement until 2025 at the earliest. Meanwhile, Biden said the situation in Hong Kong is “deteriorating” as the administration prepares to issue an advisory to businesses that he said would lay out what may happen as China furthers its crackdown on the territory.

Markets

Asian stocks and U.S. equity futures dipped Friday while Treasuries trimmed an advance as traders weighed risks to the economic outlook such as elevated inflation and regional coronavirus flareups. Shares slipped in Japan and China, while the Hang Seng index turned higher on Beijing’s plan to exempt companies going public in Hong Kong from seeking cybersecurity regulatory approval. U.S. futures were slightly in the red after energy and technology sectors led Wall Street lower. Moderna Inc. rallied in extended trading on an announcement that the vaccine maker is set to join the S&P 500. European equity contracts were little changed. The 10-year Treasury yield edged up but is set for a third weekly retreat. Crude oil is on course for the biggest weekly decline since mid-March, hurt by virus flareups and amid uncertainty over an OPEC+ deal to boost supply.

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

8:00 a.m.: EU June new car registrations

10:00 a.m.: Italy May trade

10:00 a.m.: Spain May trade

11:00 a.m.: Euro-Area May trade, June CPI

12:00 p.m.: U.K. sells bills

2:30 p.m.: U.S. June retail sales

6:00 p.m.: Russia June PPI

7:00 p.m.: Baker Hughes U.S. rig count

Russia sovereign debt rated by S&P, Greece rated by Fitch

Corporate Events

Earnings and sales include Atlas Copco, Richemont, EMS-Chemie, Ericsson, Swedbank, Svenska Handelsbanken, Sandvik, Schwab, State Street

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