The inner hawks


After four days of difficulty the USD was quite successful on Tuesday, leading the major currency pack as London opened this morning. The US economic data were of no use whatsoever but, for a change, the Federal Reserve narrative was of some assistance. Fed chairman Jerome Powell rejected the idea that the future of lower rates was set; he spoke of a wait-and-see approach. St. Louis Fed president James Bullard, a notable dove, poured cold water on the idea of a half-percentage-point cut, which he thought would be "overdone". Their minor outbreak of un-dovishness sent equities and bond yields lower and helped the USD higher.

As for the data, US consumer confidence fell 10 points in June to 121.5, its lowest level since September 2017, and new home sales were down by 7.8% in May. The other US data were less downbeat. House prices went up by 0.4% in April for an annual rise of 2.5%. Importantly, the Richmond Fed's manufacturing index was little changed in June, breaking a run of dismal readings from other Fed districts.


The euro seems to be enjoying its low profile. Although it will not find it so easy to hide on Thursday, this morning it had to contend with only a couple euro zone ecostats. Consumer confidence readings this morning from Germany and France were inconclusive. In Germany it was touch softer, in France a fraction higher.  

The EUR was left to fight for the middle ground with the GBP, CHF and JPY. It is 0.2% lower against the USD.


Until investors got wind of the slightly less dovish tone at the Fed the CAD was pottering along quietly with oil prices. That link was broken and the two headed in opposite directions before rejoining one another in the early European session today.  

A 1.7% monthly increase in Canadian wholesale sales was well ahead of the 0.2% forecast but had no lasting effect on the CAD. Even so, the Loonie managed to add 0.1% against the USD.


From the early London session through the night the GBP slid progressively lower, eventually losing 0.7% to the USD. Its principal obstacle was Brexit politics, and the battle between two contenders for leadership of the Conservative party, neither of whom has a credible plan to leave the EU. Boris Johnson would leave on October 31 "come what may, do or die", while Jeremy Hunt says that is a "fake deadline". It might play well with the Tory party faithful, who will pick the winner, but investors are unimpressed.

This morning the Bank of England governor visited parliament to testify to the Treasury Committee on the bank's recent Inflation Report. The bank is still working on the assumption that a withdrawal deal will be agreed with the EU. In the event of no-deal, interest rates would be lower than they otherwise would be.


Japan's statisticians were a no-show overnight. They were doubtless busy getting ready for tonight's retail sales numbers.  

The more muted dovishness at the Fed worked against the safe-haven JPY and CHF. For the yen it meant a loss of 0.3% to the USD.

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