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Fed speaks tonight

Another win for sterling

It was unclear why investors pushed the pound higher on Tuesday but push it they did. Sterling shared first place with the Japanese yen, which was supported by equally mysterious pressures. The two strengthened by an average of 0.4% against the major currencies and were closely followed by the Swiss franc.

With a bit of imagination it may be possible to link the pound’s upward progress to reports that EU Brexit negotiator Michel Barnier is confident that a trade deal with Britain remains possible. It is not exactly a fresh point of view: both sides continue to slog their way through the talks so they must expect at least some degree of success. Perhaps it was just that investors needed to be reminded of their underlying assumption: that a deal will miraculously materialise before year-end because Britain will not deliberately throw itself under the no-deal Brexit bus and the EU will not push it.

The sole UK economic statistic on Tuesday was constructive for the GBP, though it had no immediate upward impact. According to the CBI’s Distributive Trades Survey retail sales stabilised in July, helped by the reopening of non-essential shops. The realised balance (the number of businesses reporting increased sales compared with those reporting declines) jumped 41 points from -37% to 4%, a 15-month high.

 

US confidence fades

Euro zone and North American statisticians were not forthcoming with data on Tuesday. Spanish unemployment increased to a 27-month high of 15.33%. US house prices were 3.7% higher on the year and the Conference Board’s index of US consumer confidence was down by nearly six points on the month at 92.6.

After a jump in June, US consumer confidence fell further than expected in July as the coronavirus flared up again around the country. The deterioration in confidence also owes something to the imminent end to $600 weekly unemployment supplements on Friday. As yet, Congress has not been able to put together a replacement scheme. The Republican Senate and Democratic House of Representatives are far apart on many aspects “including unemployment insurance, aid for state and local governments”. Neither side has announced a deadline for agreement.

The only other number from the States was the Richmond Federal Reserve’s manufacturing index. It was ten points higher on the month at 10, the first positive reading since March. None of the US ecostats had any obvious bearing on the USD. It was steady against the EUR and lost two thirds of a cent to the GBP.

 

Fed decision coming up

The Federal Reserve chairman will hold a press conference this evening. Investors expect him to announce no change to monetary policy and to reaffirm that the 0-0.25% Federal Funds Rate target will not be heading higher in the foreseeable future.

Beyond that reaffirmation, investors are unsure what to expect from Jerome Powell today. The resurgence of Covid-19 in the States might or might not persuade him to take extra stimulus steps; even the idea of negative interest rates refuses to go away.

Today’s data are plentiful but mostly of only moderate importance. A dramatic slowdown in Australian headline inflation from 2.2% to -0.3% had zero impact on the AUD because the Trimmed Mean measure – the one most closely watched by the reserve bank – was still up at 1.2%.

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