GBP/USD has recorded small losses in the Tuesday session. In North American trade, the pair is trading at 1.2930. On the release front, British Construction PMI, softened in June, with a reading of 54.8. This was slightly below the estimate of 55.0. Later in the day, the UK releases the BRC Shop Price Index. In the US, there are no events, as US markets are off for Independence Day. On Wednesday, the Federal Reserve will publish the minutes of its June policy meeting.
The European forum of central bankers usually plays second fiddle to the Fed’s Jackson Hole meeting, but this year’s European forum won’t be forgotten anytime soon. Last week’s meeting in Portugal triggered sharp rises from the euro and British pound, following hawkish remarks from Mario Draghi and Mark Carney. The pound jumped 2.4%, last week, boosted by hawkish comments from BoE Governor Mark Carney. Carney said that the BoE would have to consider removing monetary stimulus, and the markets jumped on his comments as a possible sign that he was not adamantly opposed to rate hikes in the near future. BoE policymakers have waged a public debate about rate policy, with Carney stating last week that he was opposed to hikes, only to be contradicted by MPC member Ande Haldane, who said he had been close to voting in favor of a rate hike at the June rate meeting. The vote at the meeting was 5-3 in favor of maintaining rates, surprising the markets, which had predicted a 7-1 vote to keep rates at current levels. Although there are renewed fears that Brexit will take a toll on the British economy, inflation is running close to 3%, well above the BoE’s target of 2 percent. A rate increase would help lower inflation, but Carney, who has voiced concerns about Brexit’s negative ramifications since the vote last June, had been solidly against a rate increase.
The Federal Reserve has sent out the message that it plans to raise interest rates one more time in 2017, but the markets are becoming more skeptical. The odds of a rate hike in December have fallen to 47%, down from 53% last week, according to the CME Group. With the US economy giving a mediocre performance in the first quarter, and inflation levels remains low, there are Fed policymakers who are currently lukewarm to the idea of raising rates again this year. Key economic indicators have not looked particularly sharp in the second quarter, notably housing and consumer spending numbers. If inflation numbers do not improve and GDP reports for Q2 remain soft, the odds of a December hike will drop even further, which could translate into broad losses for the US dollar.
