What’s been happening?

Pound Sterling – UK Markets 

The pound stayed virtually unchanged against the euro and the dollar on Tuesday amid a lack of macroeconomic data releases from the UK. A report published jointly by YouGov and the Centre for Economics and Business Research revealed that consumer confidence improved to 109.2 in July from 109.1 in June. “Job security over the coming year has improved by the largest monthly amount since July 2015, while business activity over the past 30 days stands at its highest level since last October. Business activity over the coming 12 months has also improved,” YouGov highlighted in the publication.

Meanwhile, citing a senior EU official, The Guardian reported that Brussels was doubtful that British Prime Minister Theresa May would remain in Downing Street after March and their Brexit declaration on the framework could be only “four or five” pages long to allow room for adjustments should a future UK government adopt a different stance.

US Dollar – US Markets

Although the core-PCE Price Index, the Fed’s preferred gauge of inflation that excludes volatile food and energy prices, increased at an annual rate of 1.9% in June to fall short of the analysts’ estimate and the Fed’s target of 2%, the odds of two more rate hikes in September and December was virtually unchanged according to the CME Group FedWatch Tool. After dropping sharply with the initial reaction to the disappointing inflation numbers, the US Dollar Index rebounded sharply and closed the day with small gains as other macroeconomic data releases confirmed the underlying strength in the U.S. economy. Moreover, news of Treasury Secretary Steven Mnuchin and Chinese envoy Liu He and their staff trying to organize a meeting later this week to discuss the trade issues and possibly avoid a trade war improved the market sentiment and lifted the T-bond yields to provide an additional boost to the dollar.  

The Commerce Department on Tuesday announced that consumer spending, which makes up nearly 70% of the U.S. economic activity, rose 0.4% in June following May’s 0.5% (revised up from 0.2%) growth to reflect the 0.4% increase in personal income. Meanwhile, the Labor Department’s Employment Cost Index rose 0.6% in the second quarter to lift the annual rate to its highest level in nearly a decade at 2.8%. 

Euro – European Markets

According to the estimates released by the European Union's statistics office Eurostat, the real-GDP in the eurozone expanded by 0.3% in the second quarter to drag the annual growth rate down to 2.1% compared to 2.5% in the first quarter as lower business and consumer confidence continued to hurt the domestic demand and weigh on the activity. The negative impact of the dismal GDP data on the shared currency, however, was offset by the CPI figures.

Eurostat further reported that the inflation in the eurozone increased by 2.1% in 12 months to July while the core measure advanced to 1.1% from 0.9% to beat the market expectation of 1%. On the other hand, the unemployment rate in Germany and the eurozone remained unchanged at 5.2% and 8.3% respectively. 

What’s coming up? 

UK: On Wednesday, the UK’s economic docket will feature Nationwide’s monthly House Price Index and Markit Manufacturing PMI.    

US: The ADP’s private sector payroll figures will be the first data to watch from the United States. Later in the session, Markit and the ISM will release their respective Manufacturing PMI figures. More importantly, the FOMC is scheduled to announce its interest rate decision and publish the monetary policy statement. Since there won’t be a press conference on Wednesday, it is doubtful to see any significant changes in the statement, and the market reaction should stay fairly limited.    

EU: The ECB will be having a non-monetary policy meeting, which is unlikely to generate any headlines. Germany’s and the eurozone’s Manufacturing PMI numbers will be released by Markit.