Geo-Political Risk to Drive the USD and the GBP, with no Stats to Speak of Today

It’s going to be a tough day for the markets, with no material stats on the economic calendar to digest through the European and U.S Sessions, leaving the major currencies susceptible to geo-political risk and positioning ahead of this week’s FED meetings in Jackson Hole, Wyoming, where ECB President Draghi is also scheduled to speak.

On the central bank front, the markets responded to news last week of the ECB president’s intentions to hold back on discussing monetary policy, with the EUR falling back to $1.17 levels, the comments from the ECB suggesting that a tapering to the asset purchase program may be on hold over the near-term. Concerns over a surge in the EUR remain and $1.19 – $1.20 levels are unlikely to be levels at which the ECB will be comfortable, which could even mean an extension to the program should the Dollar fail to begin recovering in the weeks ahead.

From last week’s FOMC meeting minutes, there was some disappointment over the FED’s unwillingness to commit to a date on which to begin selling down its balance sheet, not to mention FOMC member concerns over inflation failing to make a move towards the FED’s 2% target. While the FED’s dovish position continues to be an issue for the Dollar, noise from Capitol Hill is likely to continue to be the key driver through the remainder of the year, particularly with the probability of a rate hike by year end having been on the decline since the June hike.

This week’s Jackson Hole meetings will be headlined by FED Chair Yellen, who has in recent weeks shifted to a more dovish stance on policy, having previously seen soft inflation as less of a concern, weighed by a few one off factors. Comments through the week will certainly have an influence on the Dollar as the markets look for any hints of when the FED will at least begin to sell-down the balance sheet, any forward guidance on rates a bonus.

Concerns over the U.S administration being able to deliver on growth policies is the other factor that needs to be considered, as the administration continues to grab the headlines. After Bannon’s resignation last week, there were calls for Treasury Secretary Mnuchin to follow in protest over the U.S President’s comments over the violence in Charlottesville the weekend prior and while Mnichin resisted calls to resign, any more departures will be viewed of as an administration implosion.

At the time of the report, the Dollar Spot Index was up 0.08% at 93.506, finding support from Friday’s August consumer sentiment figures, with the EUR on the back foot, down 0.16% at $1.1742.

Across the Pond, it will get a little more interesting for the Pound through the day, with the government expected to outline its position on a number of areas of negotiation with the EU, as two papers are scheduled to be released today, which are expected to cover how Britain intends to treat confidential EU information and a paper on goods placed on supply chains in the single market. While we saw the Pound rally, when Theresa May outlined the government’s blueprint on Brexit late last year, things could be somewhat different this time around, the key to how the Pound will ultimately perform after last week’s tumble, being in the EU’s response to the papers, the EU yet to have been too receptive to Britain’s aspirations. And let’s not forget the election catastrophe that left the Conservative Party with egg on its face.

At the time of the report, the Pound was down 0.08% at $1.2860, the weakness coming as the markets look ahead to today’s Brexit plans.

Interestingly, despite this week’s planned joint South Korean – U.S military training exercises in the Korean Peninsula, the markets have not yet run for the hills, with the Yen only beginning to gain against the Dollar late in the Asian session, the markets all too aware that it would only take a push of a button for the risk aversion to return, with North Korea seemingly capable of testing missiles at a drop of a hat.

In spite of the negative sentiment towards the Dollar, it’s likely to be a positive day for the Dollar, with the Pound and the EUR under pressure and risk aversion expected to provide support for both the Dollar and the Yen through the week, though any gains could be reversed should the U.S administration surprise the markets today.