Monday AM: GBP sees Lending Data | EUR Eyes German CPI | AUD Digests Turnbull Drubbing | USD Steady

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GBP

Sterling is likely to take a breather over coming days with little by way of political risk on the radar as politicians take their summer holidays.

There are no major calendar risks until Thursday, August 02 when the Bank of England meets to decide whether or not now is the time to raise interest rates.

On Monday, July 30 at 09:30 B.S.T. there are some data points to consider, however they are second-tier in terms of offering potential impact on Sterling.

There is a raft of lending statistics out from the Bank of England to consider, including consumer credit, money supply, mortgage approvals and mortgage lending for June.

All should provide some insights into the robustness of consumer confidence which is key to underpinning the economy.

Markets are expecting today's tranche of data to more or less remain unchanged on the May numbers and therefore we would not expect much by way of GBP-lead volatility.

EUR

German inflation data dominates the calendar with the final all-German number due out at around 13:00 B.S.T. A figure of 0.4% for July is forecast.

A beat or miss could influence moves in the Euro. However, trading German inflation is a tricky one as the German states release their own numbers through the course of the morning, allowing markets to calibrate towards the final reading which therefore ultimately turns out to lack the surprise factor.

Regardless, a robust inflation reading is required to convince the markets that the European Central Bank will be confident to maintain their plan of ending quantitative easing at the end of 2018 and raising interest rates at the end of 2019.

Any sudden downshift in inflation could delay these plans which will in turn hurt the Euro.

"Today’s CPI data from Germany and Spain are expected to show that annual inflation in both countries remains above 2%, in line with our view that headline Eurozone inflation – due tomorrow – held unchanged at 2%y/y last month. Still, with these trends in the headline rate consistent with only a moderate pace of growth in ‘core’ inflation, the ECB are likely to keep policy accommodative for some time," says Nikesh Sawjani, a currency analyst with Lloyds Bank.

AUD

There were four key by-elections held in Australia over the weekend with the votes expected to be a litmus test of the popularity of the incumbent Malcom Turnbull-lead government.

In the end, the vote did not go Turnbull's way, with the opposition Labor party winning “four from four” seats.

Turnbull directly linked the outcome of the upcoming by-elections to his leadership.

“By-elections are a test of policies, they’re a test of leaders, they’re a test of candidates, but there are many issues and people vote with different matters in mind,” he said prior to the vote.

"Some political uncertainty may be ahead for Australia, as the by-election results left Prime Minister Turnbull’s government with a single-seat majority in parliament – but this is just one more item on the long list of factors weighing on the AUD," say ANZ Research in response to the outcome.

Turnbull had promised to cut taxes for businesses, but it appears the idea has not washed with the average voter.

"AUD After an unfavourable set of bi-elections on the weekend, any talk of an early general election will cease, as well as possibly shelving big business company tax cuts. A key Liberal senator yesterday may have slipped, saying the election will be held in May 2019. This could interrupt the timing of the annual May budget," says a note from TD Securities.

Opposition leader Bill Shorten notes Turnbull "has made his whole case to be Prime Minister on the basis of reducing corporate tax rates for big business. It’s a bad idea. But if he can’t even sell his own economic ideas he should hand over over someone who can sell economic ideas that actually believe him.”

Politically-inspired uncertainty is therefore back on the agenda for the Aussie Dollar.

USD

The Dollar is flat, failing to reap any reward from the previous week's blowout GDP data.

On Friday, the key event was the US GDP report for Q2. GDP came in at annualised rate of 4.1% quarter-on-quarter, driven mainly by a strong contribution from private consumption, which was up by a rate of 4.0% quarter-on-quarter.

Currency markets were expecting the strong read, hence the Dollar found little profit from the numbers.

At the end of this week we have employment numbers out of the US, which will have to be strong in order to keep USD near current levels. We believe the market is more likely to punish disappointment than reward positive surprises when it comes to the Dollar.

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