Prime Minister May has served her purpose
The UK Parliament has reached summer recess without the need for a further general election. That minor victory, it seems, was all that was expected of Theresa May following her disastrous showing in June.
A vote of no confidence is already being prepared with forty six signatures necessary to force a vote. The weekend papers in the UK believe that fifteen confirmed rebels are already prepared to drive the process forward.
The pound is beset by worries over Brexit and the UK political situation. The jury is still out on the effect on the currency of a Labour government. Traditionally the pound tends to suffer at the hands of socialists but following recent events nothing is certain. Labour would certainly negotiate a softer Brexit which would give a short term lift to the pound but policies which favour workers over businesses would bring a long term fall.
Since we had been waiting for July 21st as a potential watershed, the next date for our diaries is October 1st when the conservative party conference starts. Mrs May would be best served to fight any confidence battle on her own terms. However, it would be a brave move to call such a vote since her support is weak at best.
Trump facing difficult summer too
Friday’s resignation of White House spokesman Sean Spicer has heaped further controversy on a presidency that is unprecedented in its upheaval. Russiagate, healthcare, climate change and now Spicer. To damn Trump with faint praise, he is doing a remarkable job of juggling so many controversies at one time.
The dollar is suffering from the economic fallout of Trumps inability to work with Congress. There is a major concern that he won’t be able to pass his fiscal reform and economic stimulus packages that formed part of the reasoning behind the FOMC’s rate hikes.
In an effort to be ahead of the curve when Trumps policies kicked in Janet Yellen has said that the rate hikes were partly pre-emptive. They were also partly to take the steam out of the stock market and that part has been moderately successful.
This week's FOMC meeting is likely to be low-key. A rate hike is completely off the table and any advance guidance will be limited to comments about future hikes being “data-driven”.
The dollar index has reached a thirteen month low of 93.82. Although the dollar is weak, it is now into oversold territory and a correction is possible especially since liquidity is likely to fall over the summer period.
Hawkish Draghi pushing euro higher
Hawkishness is a relative term (that is if it is a term at all!)
Mario Draghi the ECB President is very confident in his pronouncements and it is unlikely that he has seen himself as a hawk. He also doesn’t see himself as a dove either. He is trying very hard to work within the framework of nineteen diverse economies. The market “votes with its feet” and has clearly decided that the euro is its current favourite.
The 0.9000 target against the pound has now all but been reached, the high has been 0.8997! Against the dollar, the common currency, which makes up over 50% of the index, is running out of steam and a correction is possible. It is however likely to be quite shallow as reasons to buy the dollar are few and far between.
Monetary policy is probably now on hold for the next meeting of each of the Central Banks; the Fed will wait and see, the ECB will discuss a tightening in the autumn and the BoE has breathed a huge sigh of relief following last week’s inflation data.