EUR/USD: Fed Split Over Rate Hike

EUR/USD: Fed Split Over Rate Hike

• The Fed minutes released yesterday showed several policymakers said a slowdown in the future pace of hiring would argue against a near-term hike even as members of the rate-setting Federal Open Market Committee were generally upbeat about the US economic outlook. They outnumbered board members who anticipated that economic conditions would soon warrant tightening policy.
• The minutes came a day after New York Fed President WilliamDudley said "it’s possible" to raise rates at the September 20-21 policy meeting and Atlanta Fed President Dennis Lockhart said a hike next month is in play. The Fed also has policy meetings scheduled in early November and mid-December. We see the December meeting as the most likely time for a rate increase since it follows the US presidential election.
• Investors will now focus on next week's annual meeting of central bankers in Jackson Hole, Wyoming, a venue the Fed often uses to telegraph policy plans.
• Eurozone prices rose 0.2% yoy, confirming its initial estimate of two weeks ago. Month-on-month, prices fell 0.6% from June. The annual rate remains well short of the European Central Bank's target of just below 2%. Core inflation, which excludes the most volatile components of unprocessed food and energy, was unchanged at 0.8% in July. We expect Eurozone inflation to rise gradually in the coming months.
• The USD hit a seven-week low against a basket of major currencies on Thursday, after minutes from the Federal Reserve's July meeting showed policymakers were divided on raising interest rates in the near term. We keep our bullish outlook on the EUR/USD and raised our bid to 1.1180.

AUD/USD Supported By Australian Jobs Report

• Thursday's data from the Australian Bureau of Statistics showed 26.2k net new jobs were created in July, well above forecasts of an 11k gain. The jobless rate eased to 5.7% in July from 5.8% in June.
• However, full-time positions actually sank 45.4k, reversing all the gains made the month before and continuing a trend to part-time work that has been a feature of the year so far.
• Currency investors reacted to the upbeat headline number and pushed the AUD/USD up above 0.7700. Futures markets showed a muted reaction, still pricing around a 50-50 chance of another cut in interest rates by the end of the year. We do not expect a rate cut this year.
• Our long-term AUD/USD position is in good shape. We are also looking to open a short-term AUD/USD long at 0.7600.

GBP/USD: No Impact Of Brexit In Consumer Spending

• UK retail sales rose 5.9% yoy in July, compared to a consensus forecast of 4.2% and growth of 4.3% yoy in June. Shoppers in Britain shrugged off June's shock Brexit vote, adding to signs there has been little immediate hit for consumers. These are the first official figures to shed light on how consumer demand has performed since the unexpected decision by voters to leave the European Union in the June 23 referendum.
• Data released earlier this week also showed little immediate impact of the Brexit vote on the labour market but there were signs of inflation pressures building after the plunge in sterling, which could eat into the spending power of households going forward.
• Retail sales figures are volatile and Bank of England policymakers will want to see more than one month's data before drawing firm conclusions about the health of consumer spending. The BoE more than halved its forecasts for household spending over the next two years in light of the vote to leave the EU. It now expects growth in spending of 1.0% and 0.75% in 2017 and 2018 respectively as lower growth in wages and higher inflation eat into spending power.
• We think that stronger-than-expected data may provide an excuse to trim positions against the GBP in the near term.