FOMC policy to be driven by data

It’s Friday, there is an important data release in the U.S. and it’s not NFP!

Today’s release of inflation data in the U.S. will be scrutinized to see where the next hike in rates is going to come from.

Janet Yellen’s testimony before Congress has been very much a report card on the past six months although she has alluded to the FOMC’s thought process.

The dollar index has barely moved this week with a range of just 65 pips. The 96.00 level now provides strong resistance.

Interest rate differentials have historically been one of if not the most important drivers of FX rates. Pre-2008 before Central Banks crushed rates and brought in quantitative easing programmes, every economic release was studied with its effect on interest rates in mind.

Today could mark the return to those days with the Administrations 2% target of inflation in mind. It is unlikely that there will be an upside shock. In fact, a fall to 1.7% from 1.9% in May will drive concern that the “data dependency” of future rate hikes has got off to a very poor start.

Retail sales data is also released today with a bounce from May’s fall likely.

Trump in France

It is a rather surprising statistic given the U.K. reluctance and German anger that 65% of French voters welcome President Trump to France today to commemorate both Bastille Day and the American entry into World War I.

The President has spent so much of his first six months in office “putting out fires” that he has hardly had time to start bringing about the change he promised during his campaign.

This week’s “fire” has been the revelation that his son agreed to, was excited by and then met a supposed Russian Government Lawyer in June 2016 with “incriminating evidence” about Hillary Clinton.

That the “evidence” was apparently a cover to get the meeting and it was all over in twenty minutes is hardly more significant than the fact that he; agreed the meeting in the first place and omitted to tell his father either before or after.

12.5% or Trump’s first, and possibly only, term in office has now passed by and, despite his bombast and bluster, he has achieved very little that can be considered positive.

The promises of fiscal and economic stimulus remain just that; promises!  He has single handedly dismantled years of negotiation over climate change and has called upon other NATO members to invest more in defence spending as their economies are only just recovering from the worst downturn in almost one hundred years.

U.K. facing strong headwinds

A “perfect storm” is an expression that describes an event where a rare combination of circumstances will aggravate a situation drastically.

In the U.K. Brexit, inflation and a minority Government seem to fulfil those criteria perfectly.

This week’s aggravation of a delicate negotiating position by Foreign Secretary Boris Johnson has poured fuel on the Brexit flames.

Johnson couldn’t have picked a more “public” place to decry the bill for Brexit. His comment that the EU can “go whistle” if it expects to receive more than Eur 65 bio., whilst characteristic, was badly received by EU Chief Negotiator Michel Barnier who commented “he couldn’t hear any whistles only a clock ticking”.

Barnier met with U.K. opposition Leader Jeremy Corbyn yesterday in what was likely to have been a far more cordial meeting. It is, no doubt, easier to meet a potential adversary when you don’t have to negotiate with them. Should Corbyn win an Autumn election the situation may be different.

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