Sterling came under some marginal downward pressure yesterday, with GBP/USD drifting back toward the $1.38 threshold and GBP/EUR moving off recent highs up at the €1.18 level. There was no obvious driver of the action, though in any case, the pairs remain well within recent trading ranges. The UK macro schedule offered little in the way of direction for sterling yesterday, while investor sentiment has held up reasonably well over the past 24 hours. On the Covid front, the week-on-week growth rate of new infections has ticked somewhat higher, but only to 8.6%. Looking to the day ahead, there is once again little out to influence sterling, suggesting that the currency could struggle for direction after yesterday’s modest sell-off appeared to lose steam overnight.
The dollar traded listlessly through yesterday’s session, with EUR/USD holding in a tight band just below the $1.175 mark. There have been a few second-tier releases in the US over the past 24 hours, but they went largely unnoticed in forex markets. US producer price inflation came in considerably ahead of expectations in July, with prices rising by 1.0% m-o-m (forecast +0.6%). This helped push the year-on-year rate up to a decade higher near 7.8% from 7.3%, with the surge reflecting the persistence of major supply-side issues such as material shortages and transportation bottlenecks. The data, however, have limited pass-through to core-PCE inflation (the measure that the Fed targets), which likely explains the lack of reaction in the greenback.
Turning to the day ahead, the US calendar is once again devoid of any potential dollar-moving releases. As a result, we could be in for another day of muted action. In terms of what is out, the preliminary estimate of the University of Michigan’s consumer sentiment survey for August will be looked to for an insight into how confidence has been impacted by the spread of the delta variant as US caseloads have surged. In contrast to the UK, this has been matched by a relatively sizeable pick-up in hospitalisations, reflecting lower levels of vaccination coverage, particularly in the South. A return to lockdown appears unlikely given the political backdrop, but the current wave continues to pose some downside to Q3 GDP. Away from Covid, the Michigan survey will also be examined for evidence of an increase in households’ inflation expectations, after the New York Fed’s own survey pointed to a jump in July. This will be of some concern to the Fed, given the importance of inflation expectations in the wage-bargaining process.
Over in the eurozone, there is nothing due of any note today, suggesting that the single market currency could struggle for direction. With eurozone bond yields back near yearly lows, it will require either a shift in the narrative surrounding the other half of the euro’s main pairs or a notable deterioration in eurozone macro data to drive a further move lower in the coming months.
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