Euro heads upwards against the Dollar. Traders bet on impeachment?

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12 July 2017

Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

After a calm European opening, the Euro started rallying to end the day significantly higher.

E
uropean traders started buying Euros, but the uptrend accelerated after Americans joined in. A mixed JOLTS labor market report didn’t help the Dollar, but the real reason behind afternoon’s selloff was the continuing Trump saga. Not Donald Trump this time, but his son Donald Trump Jr. tweeting out some of his emails that showed he was aware of Russian efforts to help his father´s campaign and was eager to benefit from them. It wasn’t however the end of the Dollar troubles, as it got hit again after dovish speeches from FOMC members. Lael Brainard in her speech reiterated that to boost inflation back to target the Fed should move cautiously on rate hikes. In an interview for the Wall Street Journal Philadelphia’s Fed President, Patrick Harker also mentioned lower inflation, saying that slowing price growth is giving him pause on raising rates. The most dovish FOMC member, Neel Kashkari mentioned in his speech that he believes that if labor is truly scarce the wage growth will follow, he doesn’t believe that the US economy is in danger of overheating.

Today traders should focus their attention on Fed Chair Yellen speech before Congress. In a two-day testimony, Yellen will present a report on monetary policy before the House of Representatives and might give off some clues on how confident she is in the health of the US economy and future rate hikes. In the Eurozone, it might be worth looking at Industrial Production data that will be released at 10:00 UK time.

Sterling doesn’t get needed support from BoE’s MPC members

Awaited speeches by Bank of England’s Committee members disappointed investors. Sterling lost its ground following Benjamin Broadbent’s speech. It wasn’t anything that he said, but rather – what he didn’t say. In his speech Broadbent focused on trade and not on what’s important to traders – the prospects for rate hikes.

Today, investors will look at job market data which is expected to show a slowdown. The markets should react mostly to wage growth. In case of the United Kingdom, the main driver for recent surge in inflation wasn’t wage pressure, but rather a pass-through effect of Sterling’s depreciation. Wages continue to grow at a steady pace, which is somewhat disappointing and discouraging, considering that inflation is easily above the pace of wage growth reducing real income across the UK.

US job openings fail expectations, but hiring soars

The Job Openings and Labor Turnover Survey published yesterday showed a significant decline in a number of private job openings, -283 000. This negative data, albeit in a volatile indicator, was partly offset by an increase in hiring, especially in professional and business services, but also other service sectors such as education. What’s more – we can see an increase in voluntary quits by as much as 177 000 in May. This means that people are not afraid to leave their current employment, confirming the strength of the job market.

Bank of Canada expected to raise rates today

After a prolonged period of keeping overnight rate steady at 0.5% Canadian monetary authorities are expected to turn words into actions and raise the reference rate by 25 bp. We have already seen investors already buying up Canadian Dollar and boosting its price against all major currencies in June in anticipation of the move, and the market reaction after the meeting might be limited and dependent on the tone rather than a monetary policy action. Rate decision will take place at 15:00 UK time.