After a sharp tumble in the earlier session, sterling made a quick rebound on discussions about extending the Article 50 deadline for Brexit.
The dollar gave up some ground as Fed head Powell sounded less chipper about inflation risks while comdolls scored some late gains as commodities bounced.
- U.S. building permits ticked down from 1.30M to 1.27M vs. 1.33M forecast
- U.S. housing starts slid from 1.34M to 1.17M vs. 1.32M forecast
- U.K. CB leading index flat in May vs. earlier 0.1% dip
- U.S. EIA crude oil inventories up by 5.8M barrels vs. projected 3.4M fall
- Fed head Powell: Still slightly more worried about low inflation
- U.S. Beige Book: Manufacturing districts concerned about tariffs
- U.S. Beige Book: Districts see higher spending, tight job markets
- U.K. MPs looking into extending Article 50 deadline on “no deal” Brexit?
Powell: Low inflation still a concern
Fed Chairperson Powell’s optimistic remarks earlier this week may have lifted the Greenback, but his latest testimony on the Semiannual Monetary Policy Report before the House Financial Services Committee wasn’t as upbeat.
Although he repeated most of its previous comments on the U.S. economy, his response to a question on inflation revealed that he still has some concerns. Powell said:
“I would say it’s roughly balanced, maybe slightly more worried about low inflation still.”
He also acknowledged that real wages have been somewhat slow in picking up. On a more positive note, Powell reiterated that there is no evidence that a recession is imminent and that tariffs could actually lift price pressures.
Not-so-upbeat U.S. data
Uncle Sam’s numbers came in the red as both building permits and housing starts posted surprise declines. Are higher interest rates starting to kick in?
For the month of June, building permits fell from 1.30 million to 1.27 million instead of rising to the projected 1.33 million figure. Housing starts fared even worse as the reading tumbled from 1.34 million to 1.17 million instead of just dipping to the 1.33 million consensus.
This marks a nine-month low for housing starts and the third consecutive monthly drop in building permits. The shortage of properties available for sale and rising construction material costs are seen as the main culprits for the declines.
Meanwhile, the U.S. Beige Book contained some positive news as all districts reported tight labor markets and higher spending. Price increases were reportedly modest to moderate, but businesses continued to express concerns about tariffs.
Article 50 extension in the works?
With all the Brexit drama going on and the possibility of a “no deal” situation arising, word through the grapevine is that U.K. officials are discussing an extension of the Article 50 deadline.
Keep in mind that March 29, 2019 is the official D-Day for Brexit (Should it be B-Day?) so post-breakup plans should’ve been ironed out by then. However, the U.K. government has been busy fending off rebellion in its own ranks and scrambling to get its act together before negotiating with the EU.
Sources have reported that members of the EU27 are willing to allow a short extension just to give more time for a deal to be hammered out. However, a source from the EU itself expressed hesitancy because “it sets the precedent that you can vote leave but never actually leave. It mocks the whole Article 50 process.”
Major Market Mover(s):
The pound pulled up from its previous dive on a bit of profit-taking and some rumors that the Article 50 deadline might be extended.
GBP/USD climbed from a low of 1.3023 to 1.3077, GBP/JPY recovered from 147.23 to a high of 147.67, EUR/GBP retreated from a high of .8932 to a low of .8899, and GBP/AUD bounced to 1.7679.
A bit of a rebound in precious metals and crude oil helped commodity currencies regain some ground.
AUD/USD pulled up to the .7400 levels, USD/CAD fell from 1.3243 to 1.3165, AUD/JPY bounced from 82.83 to 83.54, EUR/CAD fell to 1.5342, and NZD/JPY rallied to 76.62.
The dollar returned some of its gains as Powell expressed some concerns about weak inflation while a bit of risk-taking returned.
USD/JPY fell from 112.99 to 112.67, USD/CHF slipped from 1.0002 to .9984, EUR/USD ticked up to 1.1651, and NZD/USD bounced to the .6800 handle.
Watch Out For:
- 1:30 am GMT: Australia’s jobs report (Read Forex Gump’s preview here!)
- 1:30 am GMT: Australia’s NAB Quarterly Business Confidence report