After Jay Powell’s first performance as Fed chair left the dollar under pressure today could see traders trying to take stock. In all honesty for nothing has really changed, and Powell’s performance gave us nothing new so the moves were somewhat over played, but that has been the story for the dollar and especially cable over recent weeks. However with inflation still at the core for the Fed, today’s PCE deflator reading will likely cause a bit of a stir and should be closely watched.
Cable is likely to be in focus due to the potential headlines hitting this week, and of course this comes after Monday’s speech by Jeremy Corbyn aimed at those rebel Tory backbenchers hell bent on remaining in the EU. There is both the potential on a withdrawal agreement with the EU and Theresa May’s speech on the political position post Brexit coming up on Friday. However what is more likely once all the dust settles is that we are still unclear on the what post Brexit Britain.
There are obvious nerves, and mainly because Brexit headline risk is a very real prospect as we go into the back end of the week. However there is a degree of sterling weakness currently priced in to where we are at the moment, as for me the moves are over played after yesterday’s Powell testimony. So with expectations of no real breakthrough or revelations in the next couple of days, we could see some volatile swings as has been the case for the last couple of weeks, but really the eventual outcome will be no progress, so as you were for the PCE deflator, formerly a key indicator for inflation and past Chairman’s preferred measure. After Powell obviously highlighted inflation as key, but not key enough to derail any interest rate hike plans, this will still likely take on some importance. However the headliner will likely be US GDP, but it is likely that unless a big revision or miss on the figure the real focus will be on other areas.
All in all we may see the calendar hot up a little, but very much we still focus on the US and the Fed. With Theresa May and Powell and both speaking on Friday there is still a lot of risk this week especially on sterling. However we may well see a market breather ahead of the busy end to the week, despite some US data risk.