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Muted FX Action, Though A Busier US Macro Calendar Lies Ahead


The action on currency markets was relatively muted yesterday, though sterling made some modest gains as risk appetite improved slightly. This was reflected in cable drifting back up into the lower half of the $1.39-1.40 range and GBP/EUR climbing above the €1.17 level. Looking to the day ahead, the final print of the UK composite PMI for July (a measure of business activity) is the only item on the macro schedule but is unlikely to be a mover for sterling. As a result, the currency may struggle for direction ahead of tomorrow’s Bank of England meeting, barring any unexpected shifts in risk appetite.


The euro has traded listlessly over the past 24 hours, with EUR/USD holding in the upper range of the $1.18-1.19 range. The single market currency was unreactive to the release of producer price inflation data for June, which picked up to a multi-decade high of 10.2% y-o-y. This will partially feed across into higher eurozone CPI inflation over H221, but only temporarily. Producer price inflation will ease as oil price-related base effects wash out and supply chain issues are resolved.

Looking to the day ahead, there isn’t much else out to excite euro watchers. As in the UK, we will get the final prints of the eurozone composite PMI, but as the data are rarely significantly revised from their flash estimates, the impact on currency markets is typically minimal. Other than that, eurozone retail sales figures for June are due, but they lag the release of national figures generally. Indications are that the aggregate index will point to a significant increase in household expenditure at the end of Q2, driven by a particularly strong print in Germany linked to re-opening effects.


There is a somewhat livelier calendar in the US today, with the data posing some modest downside to the dollar in our view. Of particular interest will be the non-manufacturing ISM for July, with the data projected to signal a slight pick-up in activity in the US services sector after the index dropped sharply in July. We see scope for a slight downside surprise again today, given that the delta variant emerged as a headwind to growth in the quarter (particularly in the South where vaccination rates are low). Indications are that materials and labour shortages also continued to create headaches for businesses in the month.

The employment sub-component of the non-manufacturing ISM will attract some attention, ahead of the release of the US employment report for July on Friday. Per the flash PMIs, firms reported a solid increase in employment in the month. If this is confirmed by today’s ISM data, it would provide further support for the consensus forecast for a strong 900k increase in non-farm payrolls in the month given that the manufacturing sector’s sub-index also pointed to an acceleration in jobs growth in July. Finally, we will hear from an influential Fed official (Richard Clarida) this afternoon, whose comments will be looked to for further insight into when the central bank will begin tapering its asset purchases.

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