Relatively quiet period for greenback has stretched to the end of this week as the main stain on the currency has been completely priced in the market and now it is waiting for the fresh portion of gloom (or positive news, what is perhaps even more preferable).
In the news field, the report on activity in the non-manufacturing sector from ISM became a failure. The activity of the sector increased in June, however, there is a feeling that after three rate hikes the US since December the economy, if not choking, appeared to have a little "shortness of breath". The systematic inadequacy to the consensus of forecasts becomes normal, which was confirmed in yesterday's report. The headline reading came at 53.9 points, significantly behind the forecast of 56.9. It seems that the market is quickly realized that the pace of tightening selected by the Fed proved to be too fast and pared growth bets faster than the economic data comes out. Today's NFP is likely to be a big miss so the hopes for pullback may be not realized. It may make sense to build up additional shorts on greenback, with a goal up to 92.00. Gold action resembles a consolidation below $1,270 which poised to extend gains after the data.
Regarding the pound sterling, price action after the BoE was exactly in line with our forecasts. The report turned out to be, I would say "weak-willed”: downgraded growth forecasts for next year, underscoring Brexit as the main risk factor. It is obvious that with low interest rates UK stocks will expand gains, thanks to the triumphant exporters, sterling may deepen drawdown due to the outflow of capital and thus renew acceleration processes in the inflation, which may again hit household expenditures. Salary growth may start to catch up due to investing in the expansion of output so labor market news as well as the manufacturing PMI could well take the role of the critical parts affecting dynamics of the pound.
In the news field, the report on activity in the non-manufacturing sector from ISM became a failure. The activity of the sector increased in June, however, there is a feeling that after three rate hikes the US since December the economy, if not choking, appeared to have a little "shortness of breath". The systematic inadequacy to the consensus of forecasts becomes normal, which was confirmed in yesterday's report. The headline reading came at 53.9 points, significantly behind the forecast of 56.9. It seems that the market is quickly realized that the pace of tightening selected by the Fed proved to be too fast and pared growth bets faster than the economic data comes out. Today's NFP is likely to be a big miss so the hopes for pullback may be not realized. It may make sense to build up additional shorts on greenback, with a goal up to 92.00. Gold action resembles a consolidation below $1,270 which poised to extend gains after the data.
Regarding the pound sterling, price action after the BoE was exactly in line with our forecasts. The report turned out to be, I would say "weak-willed”: downgraded growth forecasts for next year, underscoring Brexit as the main risk factor. It is obvious that with low interest rates UK stocks will expand gains, thanks to the triumphant exporters, sterling may deepen drawdown due to the outflow of capital and thus renew acceleration processes in the inflation, which may again hit household expenditures. Salary growth may start to catch up due to investing in the expansion of output so labor market news as well as the manufacturing PMI could well take the role of the critical parts affecting dynamics of the pound.
This analysis is provided as general market commentary and does not constitute investment advice. Past performance is not indicative of future results