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Attack of the doves

Draghi promises renewed monetary stimulus

The US president, the Chinese president, the ECB president and the participants in the presidential-style Tory candidates' debate all contributed, in their different ways, to a dovish tone. The most striking was Mario Draghi, who gave warning of renewed monetary policy stimulus.

It ought not to have come as a surprise that the European Central Bank president made the entirely reasonable pledge that "In the absence of improvement [to the economy], such that the sustained return of inflation to our aim is threatened, additional stimulus will be required". However, it apparently took investors aback and they marked down the euro. It lost half a US cent and fell two thirds of a cent against sterling.

A US president, who is desperate for the Federal Reserve to move in the same digestion, promptly castigated Sig. Draghi for deliberately weakening the euro and "making it unfairly easier for [Europe] to compete against the USA".

Conservative leadership race

The five remaining leadership candidates took part in an unedifying TV debate, each seeking to portray himself as the saviour of the Conservative party and, in passing, the country. Their contributions might not have been positive for the pound but at least they did not send it lower.

For sterling the best bit of the debate came when none of the contenders would pledge to deliver Brexit on 31 October. Dominic Raab could well have done so but he had been taken out of contention a couple of hours earlier. Dovish might not be the right word but investors were reassured that none of the candidates came across as a Brexiteer extremist.

Sterling gained an average of 0.2% against the other major currencies, losing out only to the antipodean dollars. The Aussie and Kiwi were both helped by news that US trade negotiations with China have been resumed and that the two leaders will meet at the G20 gathering next week.

A political quandary

Where Mario Draghi and the ECB hogged the international headlines yesterday, today it will be the turn of Jerome Powell and the Federal Reserve. The Fed is inclined to take interest rates lower but Mr Powell will be acutely aware that a cut today could be seen as bending policy to the will of the White House.

A recent survey found that "all 29 economists polled by IBT expect the Fed to leave the key interest rates unchanged in the 2.25-2.50 percent range" when it makes its announcement this evening. If so, investors will pay close attention to what Mr Powell says in his press conference.

Ahead of that, there is no shortage of important economic data, though Euroland ecostats are thin on the ground. Among the dozen or so UK consumer price index statistics the headline rate of inflation is forecast to slow from 2.1% to 2.0%, with core inflation down from 1.8% to 1.7%. This afternoon analysts expect Canadian inflation to rise from 2.0% to 2.2%. Tonight New Zealand reports on first quarter gross domestic product and the Reserve Bank of Australia governor makes an appearance.

GBP: Tory candidates pull Brexit punches

GBP: Tory candidates pull Brexit punches

EUR: Draghi warns of renewed policy stimulus

EUR: Draghi warns of renewed policy stimulus

AUD: Sino-US trade thaw helps commodity dollars

AUD: Sino-US trade thaw helps commodity dollars

NZD: First quarter GDP data tonight

NZD: First quarter GDP data tonight

USD: No change expected from Fed

USD: No change expected from Fed

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