Dollar bottoming out?

This week’s closing levels for the dollar versus the common currency have started to pique traders interest. So far this week, there would appear to be very strong interest to sell Euros around the 1.1820 level and this could provide the catalyst for the correction that has been anticipated for weeks but has, so far, failed to materialize.

Next week’s release of employment data in the U.S. preceded by activity and sentiment indexes in both the U.S. and Eurozone could add to the excitement.  The strength of the common currency has brought about a slowdown in exports from Germany and this could lead to a falling off in manufacturing sentiment. Similar data in the U.S. has been “on the weak side” for a few months so expectation is lower.

Successive 200k+ headline new jobs numbers have added to the possibility of a further hike by the FOMC this year and provided the August data is strong and there is no considerable revision to the July figures, conditions will look to be in place for a further tightening of monetary policy. The Fed Meets next on September 19/20 and while it may be too soon for a hike. Some form of advance guidance will be expected.

Yellen and Draghi to star in Jackson Hole

Traders may not have to wait for as long as mid-September for some guidance from the Fed, as the Chairman, Janet Yellen speaks today at the Central Bankers Symposium being held in Jackson Hole Wyoming. In the heart of “cowboy country” Mrs Yellen could mention the timing of the slimming down of the Fed’s balance sheet bloated by bond purchases to add liquidity to the market.

Mario Draghi, the ECB President, will also speak today and having given nothing away at his speech in Germany on Wednesday, the odds are that he will do the same today. The ECB meets on September 5th so traders won’t have to wait too long to be advised of the ECB’s intentions. It has been made clear that a rate hike is not even close to being considered but tapering of extraordinary measures could start sooner rather than later.

The Fed still awaits an economic stimulus package from the President and earlier assertions that the Fed hiked in anticipation have been replaced by the reality that the hikes were to take a little steam out of the stock markets. Mrs Yellen has been extremely guarded in her comments about equities not wishing to be labelled, like one of her predecessors, Alan Greenspan, as being responsible for a collapse in stock prices.

Sterling takes a breather

The best thing that can be said about the performance of the pound yesterday is that it wasn’t as bad as the day before. Traders have got used to looking for crumbs of comfort to arrest the recent slide but any meaningful correction is still some way away.

The 0.9240 level is starting to attract a little selling for the common currency but any buying of Sterling (selling of Euros) will stem from the continental side of the English Channel.

The pace of Brexit negotiation is expected to hot up over the coming weeks but the Government could easily become embroiled in domestic matters as a leadership election could be called. Given the weakness of the pound, further political instability could be a disaster although there are some who say a change of Government could provide a short-term boost.  

Data was released yesterday showing a fall in the net migration figure for the first time in three years. The data wasn’t especially well received by business. The Confederation of British Industry voiced concerns that vital skills were being lost. This echoes the sentiment of remain campaigners who have long said a skills shortage will be the result of Brexit as it is those with transferable talents who will be the first to leave.

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