USD: Today is all about the Fed Chairman Bernanke, who gives his all-important semi-annual testimony in Washington. A lot of the dollar volatility over the past 2 months has been down to changing expectations on Fed policy, so above all markets will be looking for a bit more clarity.
CAD: The Bank of Canada interest rate announcement at 14:00 GMT. The new governor (Poloz) is expected to echo the previous statement, underlining that an interest rate rise would be needed after “a period of time”. But as Carney showed in the UK, sometimes a new Governor may want to make their own mark and this could keep the Canadian dollar nervous.
GBP: Markets and the media will be all over the minutes of the July policy meeting for the first signs of what the new Bank of England governor thinks about the state of the UK economy and monetary policy. This was the meeting that a statement was issued saying that the market was wrong to start pricing in higher rates.
Update: British jobless claims fall, MPC Unanimous Against More QE – GBP/USD Leaps
Idea of the Day
The focus will be on sterling and the dollar today and the strong thirst for fresh insights into interest rate policy. Yesterday showed just how sensitive sterling is right now, the currency losing half a cent vs. the US dollar on the back of slightly weaker than expected inflation data. Today the minutes to the new governor’s first meeting will be seen. This was the meeting after which a detailed statement was issued saying that the markets were wrong to price higher rates in the UK. For today, the market will be sensitive to whether Carney (like his predecessor since February) voted for more QE, which is unlikely in our view.
Meanwhile, in the US, the Fed Chairman Bernanke gives his semi-annual testimony today. Whether intentionally or otherwise, we’ve had mixed messages from the Fed recently, leading to a stronger dollar through late June and early July, followed by a sharp retracement last week (on the back of Bernanke comments and FOMC minutes). Markets are desperate for clarity, which could well determine the whether cable sits above or below the 1.50 level for summer months.
Latest FX News
AUD: Having briefly touched below the 90 level on AUDUSD last week, the Aussie is putting up a fairly strong fight against fresh weakness, the strongest performer on the majors since this low.
JPY: The overnight session saw USDJPY creep higher, briefly touching the 99.50 area, but as with other majors, this was within tight ranges. No strong fresh insights on policy from the latest BoJ minutes. Meanwhile, latest indications from property firm JLL suggest 50% increase in property transactions in the first half of the year, suggestion some impact from ‘Abenomics’.
GBP: The CPI data yesterday showed just how sensitive the currency is right now to the interest rates backdrop. Meanwhile, EURGBP printed a 4 month high at 0.8707.
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