US Dollar Weakens Following Change in Sentiment from the Federal Reserve

The dollar is continuing to come under pressure as we start the week as markets price in the likelihood of an interest rate cut in the States as early as next month. The greenback has been sold across the board following the FOMC monetary policy statement on Wednesday which cited moderate growth and muted inflation with Fed member James Bullard voting for an immediate reduction of 25 basis points. At the time of writing the dollar is at a three month low against the euro, a five week low against the pound, and a fifteen month low against the yen.

Although the probability of a cut has increased this will obviously be dependent on the strength of fundamental data released between now and the Federal Reserve’s next meeting on the 30-31st July. This week, we have US Consumer Confidence, Durable Goods numbers and the final reading of GDP.  All eyes will also be on the G20 summit for news of a breakthrough in trade talks between the US and China.

Euro

In Europe, we saw a mixed bag of data with better than expected services data and manufacturing continuing to contract. German ZEW investor sentiment was pessimistic and inflation for the region has dropped to 1.2%.

Pound

In the UK Inflation dropped from 2.1 to 2%, Retails Sales numbers disappointed and although Boris Johnson is still favourite to win the race to number 10 the odds have shifted and will no doubt change again as we progress to the televised debates. Both candidates are communicating that they are committed to delivering Brexit without a deal if necessary but with Jeremy Hunt open to an extension to get the deal done the pound is likely to respond more favourably to his appointment.

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