It appears that the market’s key takeaways from Friday’s Jackson Hole speech by Fed Chair Powell were: (a) tapering by year-end remains on the cards; and (b) there is an urge at the FOMC to de-link tapering and tightening. At this stage, it appears that a September tapering announcement will highly depend on this week’s US jobs data. Another strong number should give some support to the dollar which has otherwise remained broadly-offered since the start of this week. That said, the spread of the Delta-variant (which this week has caused the EU to reimpose travel bans on US travellers and has kept weighing on China’s dataflow) continues to take a toll on the global growth outlook, which coincidentally makes any extended downward trend in the safe-haven dollar across the board as unlikely for now.
The US data calendar should not interfere with other market drivers today, as some housing figures along with the Conference Board Consumer Confidence and MNI Chicago PMIs should not have any material market impact.
CAD - Canadian Dollar
The CAD is little changed on the session though has dropped below the 1.26 level. The domestic calendar is a bit busier over the coming days which may cause the CAD to break direction. June and Q2 GDP today is perhaps the data highlight of the week and should reflect further economic gains around the domestic economy’s reopening. WTI prices have dropped as Hurricane Ida is pounding Louisiana but may have spared Gulf rigs. Note that CBC’s election poll tracker has seen the Liberal party’s lead over the Conservatives erased for the first time in 18 months (32.9% versus 31.8%). A Liberal minority government remains the most likely outcome but it may be weaker than the 2019 vintage. Note polls show a strong showing for the NDP which may be able to increase its parliamentary footprint significantly.
EUR - Euro
German CPI data released yesterday were in line with market consensus, showing a marginal acceleration in annual inflation from 3.8% to 3.9% in August. The aggregate figures for the eurozone will be published today, and even though we will indeed see another acceleration in inflation, the uncreativeness of the ECB – especially after having turned structurally more dovish with the strategy review – means that the EUR is unlikely to be impacted.
The ultra-dovish ECB also means that the EUR should have more contained upside potential compared to those currencies backed by tapering/tightening if indeed the dollar is set to stay gently offered. We could see the EUR/USD rally starting to lose some steam around the 1.1850 level.
GBP - British Pound
The complete absence of domestic drivers in the UK due to a very light data calendar and no Bank of England speakers have made the GBP merely piggyback EUR/USD’s modest uptick so far this week. A break above 1.3800 this week should, if anything, be driven solely by USD weakness, while GBP looks likely to keep trading within its recent narrow range for now.
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