Major pairs were locked in tight ranges on Monday as a light economic calendar and thin summer trading volumes, as well as caution ahead of the Jackson Hole gathering of central bankers prevented traders from placing large bets. Keynote speeches by both Fed Chair Janet Yellen and ECB President Mario Draghi later in the week kept traders wary despite there being a consensus that neither will deliver any new policy messages at the event in Wyoming, United States on August 24-26.
The euro had a rollercoaster session as it came under pressure at the start of European trading to dip to a low of $1.1731 before shooting just above $1.1800 after the US market opened. The main focus for the euro this week will be Wednesday’s flash PMI readings for the Eurozone. Draghi is scheduled to give two speeches this week, one in Germany (Wednesday) and the other at Jackson Hole (Friday). While he may try to avoid talking about the ECB’s expected stimulus withdrawal in 2018, his comments on the inflation outlook could still help steer the forex market.
Similarly, Yellen is unlikely to add any fresh policy insight in her address on Friday but traders will nevertheless be looking for signs on whether the Fed chief is becoming increasingly worried about low inflation.
The US dollar drifted lower versus the yen for much of the day, coming close to erasing all of its gains from Friday’s bump up that followed the stronger-than-expected consumer sentiment data from the University of Michigan. The greenback fell back below 109 yen and last stood at 108.75. It’s broader measure, the dollar index, was slightly down at 93.18. Also lifting the US currency on Friday was the announcement that President Trump’s chief strategist, Stephen Bannon, had been fired from his role.
However, the boost to the markets was short-lived as investors doubted whether the latest White House departure would smoothen the path for Trump’s tax reforms plans in Congress. This weighed on the dollar, while it kept safe-havens in demand. In addition, anxiety over North Korea lingered in financial markets as the US and South Korea began a 10-day military exercise, further supporting safe-havens such as gold and the yen, though the Swiss franc was mixed.
Gold headed back up towards Friday’s 9-month high of just above $1300 an ounce and was last trading around $1290 an ounce.
The pound was mixed at the start of the week, though it managed to firm slightly against the dollar. There was some support for sterling today as the British government further clarified its position on Brexit. The UK government is due to publish a series of Brexit position papers this week, following on from last week’s paper on the Northern Irish border with the Republic of Ireland.
Today’s publication outlined details on a post-Brexit customs agreement with the EU, with the British side pressing for “the freest and most frictionless trade possible in goods and services”. However, there are fears the negotiations on the next phase of the Brexit talks could be delayed as EU officials insist that not enough progress has been made on the key issues of EU citizens’ rights and the divorce bill, despite assurances to the contrary by the UK prime minister’s spokeswoman.
The pound climbed to just above the $1.29 level in late European session, but was down versus the single currency, with euro/pound edging up to 0.9143.
The only notable data release today were Canadian wholesale trade figures. Wholesale trade in Canada missed estimates of a 0.2% drop to decline by 0.5% over the month in June. The loonie was little changed after the data, with dollar/loonie trading around 1.2580, not far from Friday’s 2-week low, despite the weak data and lower oil prices.
Oil prices fell back on Monday as traders took profit from Friday’s surge when they rose by over 3%. WTI oil fell by nearly 1% at $48.06 a barrel and Brent crude was down by a steeper 1.5% at $51.90.