FOMC & GDP to provide short term direction

This week the focus will switch to the other side of the Atlantic as the fallout from the resignation of President Trumps Whist House spokesman continues.

Sean Spicer has been the focal point of Trumps administration fielding tough questions producing gaffes in almost equal measure.

Spicers resignation is a further illustration, if one were needed, of the way in which the President “shoots form the hip” in making major decisions without proper consultation.

The dollar continues to suffer from the political situation in the U.S. Trumps defeat over healthcare followed by his almost petulant reaction widens the fracture between him and Congress whose support he needs is he is to pass reforms that should drive economic growth.

The FOMC meets on Wednesday and rates are widely expected to be left unchanged. Recent Comments from FOMC members including Fed Chair, Janet Yellen have confirmed a “wait and see” approach waiting for the reaction of the economy to the three hikes that have taken place since last December.

The dollar index reached a fourteen-month low of 93.86 on Friday as support drains away.

Preliminary Q2 GDP data is set for release on Friday. Analysts are expecting a rise of 2.6% but the FOMC will be satisfied with anything above 2% following Q1’s anaemic 1.4% growth.

Hard Brexit fears continue to hit Sterling

Brexit is set to be the battleground on which any future Conservative Party leadership battle is fought in the U.K.

The Hard/Soft Brexit dilemma added to the price of departure and access to the single market in trade and services are dividing the ruling Conservative Party. Trade Minister Liam Fox who is in the U.S. this week overseeing the preliminary talks over a U.K./U.S. trade deal was quoted as saying that departure from the EU without a trade deal would not be a catastrophe for the U.K. His comments are at odds with Chancellor Philip Hammond who sees a trade deal as vital to the U.K.’s economic future.  

These discussions are likely to “run and run” as a challenge for the leadership is almost certain for the Autumn.

As Parliament has now risen for its summer recess, Opposition Leader Jeremy Corbyn can reflect on a couple of months that have exceeded his wildest dreams and look forward to an Autumn General Election that he has a real chance of winning as the Conservatives tear themselves apart.

Currency Markets in tight ranges

The dollar continues to suffer from political difficulties as does Sterling. The Euro now free from the constraints of nationalism is continuing to rise.

Interest rate differentials favour the dollar but are providing little support as traders look to the “next hike”. It is difficult to see where that will come from and the Fed, BoE and ECB all appear to now be on hold.

It is likely that the ECB will be the next to tighten monetary policy starting withdrawal of quantitative easing early in the new year although it will be Autumn before we receive any further advance guidance.

Next week’s MPC meeting in the U.K. has lost a little of its intrigue following recent inflation data. The prospect of a rate hike has faded considerably but there may be discussion of withdrawal of the Asset Purchase Scheme.

The common currency has come within touching distance of 0.9000 and that level could now provide support for the pound as overbought conditions bring a correction. Against the dollar a comparable situation prevails. The greenback is weak across the board as evidenced by the level of the dollar index but against the Euro, a correction, however shallow, is a possibility with support at 1.1620/1.1580 likely to hold.

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