- Dollar Doldrums
- ECB May Hold Fire
- New Opening For Pound
Investors over in Europe are sanguine after a more inspiring Chinese GDP reading. The Q2 GDP data came in at 6.9% ahead of the forecast of 6.58%. China is the second biggest economy of the world and the chief concerns were that we may be heading towards more than a soft landing but the recent economic readings have eased off those fears.
This week is primarily about the currency market. Firstly, investors are going to pick up the momentum where they left off when it comes to the dollar. Factors such as underwhelming US economic data, cautious testimony by the Fed Chairwomen, Janet Yellen and meagre inflation got the dollar bulls worried. We do think that the mighty dollar may be well oversold here and this is due to the fact that traders are questioning the Fed’s ability to increase the interest rate one more time this year. They do expect the Fed to reduce the size of their balance sheet rather than to increase the interest rate this year and for many, that has become more significant. Scaling down the size of the balance sheet would make the dollar stronger and we do think that the market is not pricing this at all.
ECB May Hold Fire
The second most vital affair for the markets is the upcoming ECB meeting on Thursday. The speculations are high on both sides of the argument. Some say that the ECB will use this meeting to quench the fire about any rumours that the ECB is going to reduce its monetary stimulus. While the other side is making their argument that it is about time to scale back from the ultra-loose monetary policy. The president of the European central bank would have another opportunity if he thinks that he is not going to utilise this meeting to set the tone for reducing the size of its monetary policy before the next meeting. The central banker’s symposium could be just the place where the ECB president lays out his agenda for tapering. A number of various members of the ECB committee do concur with the view that there may be no need for the ECB to keep its patient in the hospital given the recovery we have experienced. Therefore, Draghi may not feel that much pressure to set the foundation for tapering during the upcoming meeting but the market would certainly take its own interpretation
New Opening For Pound
As for the British pound, we broke a major level of 1.31 last week and closed above the 1.30 mark confirming that we are going to start a new trend in a new territory which we have not seen for a while. The inflation data that is due this week remains an important focal point for the economy, and Mark Carney would also add his own colours. If the inflation data confirms further improvement, the bank would find it more difficult to defend its current monetary policy.