USD continues to maintain its strong position against majors

USD

Yesterday the dollar continued to maintain its support moving to monthly highs against most major currencies. This is mainly due to markets having changed their minds regarding the latest announcement from the Federal Reserve. The Minutes from the latest FOMC Meeting published on Wednesday were initially seen as dovish, particularly considering policymakers expressed their concerns about the risk of raising the rate benchmark to a level it would become more of a problem than a solution. Nevertheless, the latest US figures hint at a much better situation than initially feared. Inflation has finally begun easing while the employment sector remains solid.

Additionally, other indicators related to business activity have surprised to the upside. US Fed officials were on the wires with a mixed message… Minneapolis Fed Neel Kashkari said that if they keep raising rates, the risk of a recession could increase, although he does not believe the country is currently in a recession. On the other hand, the usual hawk, Bank of St. Louis Jim Bullard stated he is leaning towards another 75 basis points interest rate hike in September.

GBP

Today’s focus will be firmly on the UK’s data release with Retail Sales (MoM) expected to come in at -0.2% and year-on-year figure is expected at -3.3%. June’s GDP report showed that the economy contracted in the three months through June (-0.1% from +0.3%).

This week, UK employment change figures for the month of May missed expectations badly (160K from 296K) and the July UK inflation report (CPI) came in much hotter than anticipated (+10.1% y/y from +9.4% y/y).

While not technically in stagflation just yet, the UK economy continues to evolve in that direction. Ultimately, evidence of stagflation plaguing the economy is bad news for the British pound. Coupled with the tensions around the race for the next Prime Minister – in which frontrunner Liz Truss has suggested she would move to strip the Bank of England of its inflation mandate to focus solely on growth – Sterling is in a bad position as the second half of August unfolds.

Key announcements

07:00 – GBP – Core Retail Sales (YoY) actual -3.0% vs previous -6.2%

07:00 – GBP – Core Retail Sales (MoM) actual 0.4% vs previous 0.2%

07:00 – GBP – Retail Sales (YoY) actual -3.4% vs previous -6.1%

07:00 – GBP – Retails Sales (MoM) actual 0.3% vs previous -0.2%