EU Inflation Data, Lagarde And Powell Speeches To Drive Markets

Pound treads water ahead of Thursdays UK general election

GBP

After spiking above $1.2700 in the American session on Monday, GBP/USD reversed its direction and erased its daily gains to close at $1.2650. The pair struggles to regain its traction and trades below this level to start the European session.

The Pound managed to stay above ground against the majority of its peers on Monday following the UK’s finalised manufacturing index for June. Although the survey was revised lower, falling from 51.2 to 50.9 rather than rising to 51.4, the index remained in expansion territory (a score over 50) and continued to point to an upward trend in the UK manufacturing sector.

Looking ahead, the primary catalyst of movement for the Pound this week will likely be the UK’s upcoming general election. Scheduled for Thursday, any unexpected results could infuse substantial volatility into GBP exchange rates towards the latter stages of the week.

No Major Data

EUR: Inflation should slow

EUR

The relief rally in the Euro following French election results which have so far come in line with expectations, ran out of steam yesterday, and it is hard to see any significant extra support for the common currency given the open questions ahead of the second round on Sunday 7 July.

Another reason that the Euro does not look likely to get much idiosyncratic support is that regional CPI estimates have so far come in in line with expectations, and pointed at declining inflation in the eurozone in June. Consensus for today’s eurozone-wide prints are 2.5% for headline and 2.8% for core. That is probably not enough to trigger a major repricing in rate expectations, but could soften the hawkish pushback by European Central Bank officials in Sintra. Lagarde will deliver remarks today in the panel with Powell after she said the ECB needs more to assess inflation uncertainty in her opening remarks yesterday. Data 10.00: CPI Flash estimate y/y expected 2.5% from 2.6% & Core CPI Flash estimate expected 2.8% from 2.9%. Speaker 14.30: ECB President Lagarde.

USD: Macro versus Trump

USD

With the exception of some strengthening in the Euro and the Norwegian Krone thanks to a post French-vote relief, the Dollar has had a good start to the week. For the second time in five days, the Dollar is appreciating on the back of higher perceived chances of Donald Trump winning the US presidency. Yesterday, the US Supreme Court granted Trump some immunity for trying to reverse the 2020 election results, making it unlikely he will face trial before the November vote. It is now clear that investors have made the Trump-stronger Dollar link. On the side of the Democrats, there has been pressure on President Joe Biden to step down from the race. Given the market’s growing scepticism of Biden’s chances against Trump, there is a possibility that him stepping down would be a Dollar-negative development, especially if he gets replaced by California Governor Gavin Newsom.

On the macro side, the June ISM manufacturing index for the US slightly softened to 48.5 yesterday, indicating continued contraction. Today, JOLTS job openings for May have decent market-moving potential. Remember how a surprise drop to 8059k a month ago drove the Dollar moderately lower. Expectations are for another decline to 7950k today. The other big event is Federal Reserve Chair Jerome Powell participating in a Sintra panel with ECB President Christine Lagarde. There has been a tendency from Powell to be a bit more optimistic than the FOMC consensus on disinflation, and there may be some downside risks for the Dollar ahead of today’s speech.

Speaker 14.30: Fed Chair Powell. Data 15.00: JOLTS Job openings expected 7.96M from 8.06M.?