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That déjà vu feeling

There is a strong feeling that we’ve been here before, exactly 12 months before to be exact. Markets got themselves into a frenzy that the Fed will hike in September, with Fed officials not standing in the way, only for the data to scupper things. Of course, we’re not there yet, with the decision not until 21st September. That said, yesterday’s weaker than expected services ISM data has dented expectations for a further move, the dollar falling 0.8% on the dollar index as a result. The chances of a hike by year end, as priced by interest rate futures, is now only around 50%, so the scope for further dollar volatility ahead remains strong as expectations change.

Overnight, we’ve seen the Aussie marginally weaker after the latest GDP data slightly undershot expectations, rising 0.5% MoM. Still, this is 100 quarters without a recession, with the headline 3.3% gain an enviable figure for most of the developed world. The Aussie consolidated after yesterday’s gains, both on Aussie strength and dollar weakness.

Today’s main excitement could well come from the appearance of BoE governor Mark Carney in front of the UK Treasury Select Committee, with other members of the MPC. No doubt there will be some robust exchanges, given that some MPs may feel the Bank over-reacted, both in its warnings before the Brexit vote and also in the subsequent response. Sentiment data has largely re-bounded and other data are not showing a dramatic impact on the economy as yet. Sterling has performed well over the past week, in part because longer-term short positions are being squeezed out of the market in response to data surpassing expectations. EURGBP has seen some reversal in early trading after what has been 8 straight days of declines, with yesterday’s low of 0.83338 marking the initial support level for today.

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