July consumer-confidence data were released yesterday. The Conference Board index declined from an upwardly revised 92.2 points to 90.8 points, compared with the preliminary estimate of 92.4 points. Consumer sentiment remains subdued as households continue to face elevated inflation and are concerned that the ongoing conflict in the Middle East could lead to a further deterioration in economic conditions. Today at 20:00 (GMT+2), investors will focus on the conclusion of the US Federal Reserve meeting and its interest-rate decision. Most analysts expect the regulator to keep the target range unchanged at 3.50–3.75%, although markets continue to price in a meaningful possibility of a quarter-point increase. Traders will pay particular attention to the accompanying statement and comments from officials, as any hawkish signals could trigger renewed strengthening of the US dollar against other assets. Inflation remains above the regulator’s 2.0% target, with the annual Consumer Price Index reaching 3.5% in June. At the same time, the labour market remains relatively resilient: unemployment declined to 4.2%, while nonfarm payrolls increased by 57.0 thousand in the first month of summer. Against this background, the outlook for the Fed’s September decision remains highly uncertain.
Eurozone
The euro is weakening against the yen and the pound while showing mixed performance against the US dollar.
Market participants and forex traders are focusing on Germany’s June Import Price Index. On a monthly basis, the indicator declined from 0.7% to –0.7%, in line with analysts’ expectations. On an annual basis, growth slowed from 6.8% to 6.1%, slightly exceeding the forecast of 6.0%. Overall price pressure is gradually easing, although this process may prove temporary if the United States and Iran fail to reach an agreement on resolving the Middle East crisis. In that case, energy prices could resume their upward movement and once again contribute to a higher cost of living. This could force the European Central Bank (ECB) to return to a more hawkish policy stance toward the end of the year.
United Kingdom
The pound is strengthening against the euro while showing mixed performance against the yen and the US dollar.
Investors are assessing positive June lending data. The number of mortgage approvals increased to 58.2 thousand from approximately 56.6 thousand, exceeding the forecast of 57.0 thousand. Net mortgage borrowing rose to around 7.7 billion pounds, while net consumer-credit borrowing increased to approximately 1.8 billion pounds. Analysts note that the renewed improvement may point to better prospects for the national economy, although some observers warn that stronger borrowing could also reflect growing financial pressure on households forced to use credit to cover everyday expenses. The National Institute of Economic and Social Research (NIESR) also improved its UK gross domestic product forecast, estimating that the economy may expand by 1.1% this year instead of the previously projected 0.9%. The Bank of England will announce the results of its meeting tomorrow. The regulator is widely expected to keep borrowing costs unchanged at 3.75%, although its comments may provide signals about the next policy steps.
Japan
The yen is strengthening against the euro and the US dollar while showing mixed performance against the pound.
In the absence of major economic releases, currency movements are being driven mainly by external factors. The government is assessing the damage caused by the recent earthquake, which forced several major Japanese companies to suspend production in Kyushu, an important centre for the semiconductor and automotive industries. Toyota Motor Corp. temporarily halted operations at three plants, Honda Motor Co., Ltd. suspended production at at least one facility, and chipmaker Renesas Electronics Corp. stopped operations at two plants. The full economic cost of the disaster has not yet been calculated.
Australia
The Australian dollar is weakening against its main counterparts, including the yen, euro, pound and US dollar.
Investors are focusing on second-quarter inflation data. The Consumer Price Index rose by 0.6% quarter-on-quarter after a 1.4% increase in the previous period, while the annual rate eased to 3.8%. The trimmed-mean measure of underlying inflation increased by 0.8% during the quarter and stood at 3.6% year-on-year, slightly below market expectations. The figures suggest that the Reserve Bank of Australia may pause its recent hawkish policy course. Following the release, market expectations for another rate increase at the August meeting declined sharply, although the regulator is likely to remain cautious because inflation continues to exceed its target range.
Oil
Oil prices resumed their upward movement today amid renewed escalation in the Middle East. Iran launched another attack on US military facilities in the region despite an earlier pause in reciprocal strikes. The White House warned that a response from the US military would follow, increasing the risk that large-scale hostilities in the Persian Gulf could resume and disrupt energy supplies.
As FORECK.INFO noted in its recent overview of the dollar, euro, pound, yen and oil markets, geopolitical developments and risks to transportation through the region remain major sources of volatility in energy prices.
The American Petroleum Institute (API) reported an increase of 3.296 million barrels in US crude inventories, compared with expectations of a 2.500 million-barrel decline. However, the official report from the US Energy Information Administration (EIA) later showed that commercial crude inventories fell by 7.167 million barrels during the week. The result was considerably stronger than the expected increase of approximately 0.700 million barrels and may provide additional support to oil prices.
