Daily Market Report - 26/08/2014


The big story from last week has once again been the strength of the US Dollar, touching it’s highest value in almost a year on a trade weighted basis. The catalyst for the week’s activity was the minutes of the July US Federal Reserve (Fed) monetary policy meeting, which were published.

Contained inside the minutes was a note that “recent improvement in labour market conditions and the cumulative progress over the past year had been greater than anticipated,” suggesting that interest hikes may occur sooner than expected. This triggered a fresh round of USD buying.

The President of the European Central Bank, Mario Draghi, said that if inflation continues to fall, risks for price stability would increase and the governing council would need to use all available tools. Analysts believe this is Draghi brushing off the inflation risks once again. The ECB proved to be behind the curve when they blamed temporary factors before and now market-based measures of inflation are flashing warning signs.

In the headlines yesterday was news German business confidence declined for a fourth month, reflecting a faltering euro-area economy that European Central Bank President Mario Draghi says might need more stimulus.

Germany has been the engine of the euro area’s revival since last year and its resilience could be critical now as growth stalls and political tension with Russia threatens trade flows. Draghi signalled last week that he could step in with broad-based asset purchases as the region’s inflation outlook worsens.

The pace of new-home sales fell to the slowest in four months in July, signalling US real estate lacks the vigour to propel faster growth in the economy. Housing has advanced in fits and starts this year as tight credit and slow wage growth kept some prospective buyers from taking advantage of historically low borrowing costs. 

Key Announcements:

13:30 BST – USD - Core Durable Goods Orders m/m

15:00 BST – USD - CB Consumer Confidence

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