US inflation data awaited for Fed direction

Last Friday, the Euro failed to sustain an early advance against the US Dollar, and retreated to trade below the $1.14 level as investors unwound long positions to take profit. The European Central Bank is likely to signal in September that its Bond-buying scheme will be gradually wound down next year and Mario Draghi could give the next clue on the plans in late August. Meanwhile, investors were awaiting US indicators, including core inflation, retail sales and industrial production for June for more insight on the Fed monetary policy tightening this year.

US equity and Treasury prices rose as the markets were still digesting last week’s remarks from Janet Yellen at the semi-annual testimony to Congress. The Fed chair said US policymakers were watching inflation very closely given its failure to pick up to the Central Bank’s target, but she offered no fresh clues on the timing of the next rate rise or when the Central Bank would begin reducing its balance sheet. Yellen added that 3% US economic growth would be an admirable but difficult feat to achieve over the next few years, casting doubt on the Trump administration’s ability to reach that goal with deregulation, infrastructure spending and tax reform.

Last Thursday as well, the British Pound climbed for a second day amid further evidence of a split between policymakers. BoE McCafferty said that the Central Bank should consider unwinding its 435 billion Pound quantitative easing program earlier than planned. The latest guess on voting would see 2 or perhaps 3 of the 8 Monetary Policy Committee members voting for an rate hike in August and the chances of an August hike have now dropped to 14% from around 25% last week after comments from Deputy Governor Broadbent who said he was not yet ready to raise rates.