Central Bank meetings, Political summits & data - no respite in FX

·        Jackson Hole Symposium – annual meeting of central bankers is sure to generate headlines and volatility in currency markets (Thurs 22-Sat 24)

·        G7 Meeting: Global leaders with divergent opinions and domestic woes meet in Biarritz.

·        USA Fed Interest rate Meeting minutes: Always closely watched (Wed 21)

·        Japan: Important data this week, with everyone hoping for a rebound after last months lowest inflation reading for 2yrs and todays poor data (Tues 20)

·        Australia: Interest rate decision tomorrow, nothing expected but a cut in Nov19 and Feb20 seem locked-in after the central bank took a more aggressive stance to monetary policy. (Tues 20)

EUR: A dismal time continues to weigh on the shared currency, with inflation and growth a long way from target level. Comments below from the regions largest economy show the extent of the problem: 

16th Aug: Bundesbank noted that the overall economic performance could again decline slightly.

"The main reason for this is the continuing downturn in the industry," the central bank explained, as reported by Reuters. "While domestic consumption continues to isolate the economy, the jobs market is already showing signs of weakness and confidence in the services sector is also dropping." 

Inflation released this morning shows Core Inflation at 0.9% - fallen from 1.1%, prompting the ECB member Muller to state that September may see the announcement of new stimulus programs from the ECB. Can more of the same medicine stimulate the Eurozone? The market does not seemed convinced.
This keeps EUR/USD under pressure, having fallen from 1.1750 last Sep to 1.1100 today. 

GBP: Knowing that the EUR has been under pressure, then we can gauge the enormous fall in the value of GBP by looking at GBP/EUR: Declined from 1.1750 to 1.0950 through 2019. The last leg down was due to the election of PM Johnson, bringing a no-deal Brexit closer to reality. Weakness will continue until a plan is presented to the EU – but this cannot rebuild UK domestic confidence, investment or skills-loss. 

GBP/USD rebounded last week in the biggest 1-day jump in 4weeks, reaching 1.2150, and consolidating today as Governor Carney stated that negative UK interest rates were currently  NOT an option.
GBP/USD at 1.4000 and GBP/EUR at 1.3000 seem to be a distant memory now.

USD: We have the G7 Summit this weekend and there is plenty for those leaders to discuss – the US-China trade war will be high on the agenda, but the personalities and relationships have all been strained by the US President’s new approach to global politics. 

The USD trades on a firm footing, but short-term volatility is ever-present as the Central Bank has swiftly changed its tune – reacting to recent global headwinds by reducing interest rates. Whether this shields the US economy from a downturn or not, it in a new policy, where 0.25% interest rate movements are expecting to affect domestic and international markets significantly, in a short time-frame. 

India: Having gradually cut rates in 2019, the repo rate sits at 5.4% with the central bank focussing on growth strategies for the economy hurt by global headwinds. 

China: This week introducing a market-driven lending rate, designed to boost cheap corporate funding. In short, a poll of the top 15 lenders will be taken monthly, and an average of the 1yr and 5yr lending rates will then be used as the banking industry benchmark. This was market-positive. 

USD/CNY reference rate holding around 7 seems to present the world with an ‘orderly depreciation’ – the next 3months will be key in signalling China’s future moves.