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Dollar bulls retreated after Fed officials shared their mixed views on the timing of future rate hikes and balance sheet reinvestment. The issue Russian involvement in the U.S. election came back in the spotlight, dampening gains for equity indices as well.

  • Canadian housing starts up from 195K to 213K vs. 200K forecast
  • U.S. JOLTS job openings down from 5.97M to 5.67M in June
  • U.S. final wholesale inventories at 0.4% vs. 0.3% forecast
  • FOMC member Brainard: Need to assess inflation before hiking again
  • Brainard: Pace and timing of balance sheet runoff could impact USD action also
  • Brainard: Appropriate to begin runoff soon
  • FOMC member Kashkari: Economy not in danger of overheating with wages so low
  • Fed official Harker: Considered pausing hikes due to slowdown in inflation
  • Harker: Fed should begin unwinding balance sheet later this year

Major Events/Reports

Weak U.S. medium-tier data

Uncle Sam’s numbers came in the red, signaling that the economy isn’t out of the woods just yet. The JOLTS job openings figure for June came in weaker than expected as it fell to 5.67 million versus the projected 5.98 million reading.

To top it off, the May figure was downgraded from an initially reported 6.04 million in job opportunities to just 5.97 million. This underscores the outcome of the latest NFP release, which revealed that the labor market is running out of openings to fully absorb the influx of new or returning workers.

Meanwhile, the U.S. final wholesale inventories reading was revised from 0.3% to 0.4% to indicate that businesses left a few more items in stockpiles rather then selling them out to consumers. For this particular report, a higher than expected figure usually hints at lower production activity and business spending down the line because inventories have yet to be depleted.

Rate hike and runoff chatter from Fed officials

Four Fed officials shared their thoughts on future central bank action during the recent U.S. session and a couple of ’em are voting members.

For FOMC policymaker Brainard, the committee needs to reassess inflation before considering hiking interest rates once more. She emphasized that they should take the soft inflation data into account and proceed more cautiously in their next tightening moves.

When it comes to balance sheet unwinding, Brainard did say that it’s appropriate to start soon. While this could have a spillover effect on the forex market, she noted that the U.S. dollar could be more sensitive to interest rate changes.

As for FOMC member Kashkari, overheating is the least of the U.S. economy’s concerns right now since wage inflation is so low. He pointed out that wages will pick up only when labor is really scarce, and that’s probably when he might stop opposing rate hikes.

In an interview with the Wall Street Journal, Fed official Mester mentioned that the jobs market is on the right track and that gradual rate increases are still warranted. In another interview, Fed official Harker said that he is having second thoughts about the tightening timeline due to soft inflation data. However, he did mention that the central bank should start the balance sheet runoff later this year.

BOE official Broadbent talks Brexit risks

Pound bulls seemed very disappointed that MPC member Broadbent didn’t sound as hawkish as his fellow policymakers during his testimony.

Instead, Broadbent focused more on the potential impact of Brexit on U.K. trade, citing that “a significant curtailment of trade with Europe would force the U.K to shift away from producing the things it’s been relatively good at.”

Broadbent also mentioned that global trade activity has slowed since the financial crisis and that this weighs on price levels but it won’t necessarily cause job losses.

Major Market Mover(s):

GBP

The pound reversed its previous rallies and more when market watchers didn’t get any upbeat remarks from MPC member Broadbent.

GBP/USD slid from 1.2927 to a low of 1.2839, GBP/JPY tumbled from a high of 147.73 to a low of 146.20, EUR/GBP popped up from .8816 to a high of .8932, and GBP/CAD fell to the 1.6600 handle.

Watch Out For:

  • 12:50 pm GMT: Japanese PPI y/y (2.1% expected, 2.1% previous)
  • 1:30 am GMT: Australian Westpac consumer sentiment (-1.8% previous)
  • 5:30 am GMT: Japanese tertiary industry activity index (-0.5% expected, +1.2% previous)