Prices rise at just 0.1% in July
Inflation has been the only significant economic statistic that has reacted as expected to the three rate hikes that taken place in the last nine months. Inflation peaked at 2.7% in February and has been falling since. Year on Year prices rose by 1.7% in July, lower than analysts’ expectations but slightly more than in June.
The dollar continues to be driven by rate hike expectations despite a near 10% fall in the dollar index this year. There is little to encourage dollar buyers until a significant package of fiscal reform and economic stimulus measures are announced by the President and passed by Congress.
There is little significant in the way of economic data being released in the U.S. this week although the FOMC minutes, released on Wednesday will provide some insight into how Fed members were thinking at their last meeting when rates were left on hold.
The dollar is clinging to recent levels although the Euro is looking likely to resume its upwards trajectory. Buyers of the single currency will most likely look to renew positions as the 1.1680 support holds. Dollar weakness against the JPY and CHF are entirely driven by the North Korean crisis and until that abates the dollar will remain under pressure.
U.K. data to provide short term direction
Inflation and employment reports will be released in the U.K. this week. Inflation, which is due for release tomorrow, will likely resume its climb towards 3% where it is expected to peak but that was not supposed to be until October. June’s improbable fall to 2.6% year on year is unlikely to be repeated as several items, including oil, have recovered in price.
Real wages have started to fall as inflation has continued to rise with MPC’s hands tied over Brexit concerns. With wage growth at just 2% despite record low unemployment the Bank of England faces an uncertain time before it can afford to react to the data.
Sterling has resumed its fall versus the Euro falling to 0.9121 as it begins to threaten medium term support at 0.9270 last seen following the Brexit referendum.
As we get deeper into August and liquidity thins further minor developments can be magnified and tests of long held support and resistance levels can be seen triggering stop loss levels much to the anger of traders.
North Korea still under scrutiny
President Kim remains defiant and stated on Friday that the testing of missiles likely to fall within 30km of Guam will take place early this week. With China warning the U.S. to act with caution the situation is likely to escalate further before any resolution.
Given the personalities of those involved with Chinese President Xi is in the unenviable position of mediator between two such volatile characters, markets continue to react to any further rhetoric.
The JPY is trading below 110.00, a close to 5% fall from its recent lows, while the CHF had its largest one day fall for three months.
Any permanent solution to this crisis is some way away, unless there is a military intervention by the U.S., so it is to be hoped that Kim will back off from his threats and allow the situation to diffuse naturally. That is probably wishful thinking giving President Trump one more item to deal with upon his return from vacation.