medium-term impact

The GBP/USD currency pair was traded with low volatility on Tuesday but still managed to move upwards, while the euro currency stood still and decreased more than it grew. Thus, even on a completely empty Tuesday, the pound sterling found reasons to start moving north again.   The price has re-fixed above the moving average and is still very close to its local maximums, which also coincide with the annual maximums. The British currency still cannot correct down properly, which is especially visible in the 24-hour timeframe. Occasionally, there are downward corrections on the 4-hour timeframe, but in most cases, they are purely formal.   The logic of the movements needs to be improved. Two weeks ago, when the Bank of England unexpectedly raised the rate by 0.5% for many, the pound did not grow. But yesterday, when it was a holiday in the States, it added about 40-50 points. The British economy is still weak and is holding out with the last of its strength not to slide into a recession.   US GDP exceeds forecasts by 0.7% and shows a value of +2% q/q. The Bank of England's rate continues to rise but is still lower than the Fed's. The British regulator can raise the rate several times but will likely stay within the Fed's rate. All this suggests that even if the dollar doesn't have strong reasons to grow now, it certainly has no reasons to fall. However, in most cases, we continue to observe the pair's growth. Only business activity indices in the manufacturing sectors can be highlighted for the first two days of the week. In the US and UK, the indices fell synchronously for June and have long been below the "waterline" of 50.0. Again, the pound did not have an advantage over the dollar due to macroeconomic statistics.     Thursday and Friday promise to be "stormy"! The week's most important events are concentrated in its last two days. Today, of course, the Fed's minutes will be published. In the European Union and Britain, the second estimates of business activity indices for June will become known, but all these are secondary data. It is unlikely that the Fed's minutes will surprise traders who are already confident in a rate hike in July, as well as after Jerome Powell's five speeches over the past weeks, in which he laid everything out. Therefore, the main movements are planned for Thursday and Friday, when the ISM, ADP, unemployment benefit claims, the number of job openings, NonFarm Payrolls, and the unemployment rate will be released in the US.   As we can see, almost all reports are related to the labor market, which the Fed continues to monitor closely, and which has a priority for the regulator and the market. However, even if the reports are disastrous (which is currently hard to believe), the Fed will not change its plans to raise the rate.   And for the GBP/USD pair, it doesn't matter at all. The pound grows for a reason and without. If statistics from overseas turn out to be weak, it will merely get a new reason to grow against the dollar. If the statistics from the US turn out to be strong, we will see a new pullback down, a maximum of 100 points, and the Fed's position on the rate will not change. Thus, the market's local reaction could be significant.   In the medium term, these reports will not affect the situation in the market. The average volatility of the GBP/USD pair over the last 5 trading days is 94 points. For the pound/dollar pair, this value is "medium." Therefore, on Wednesday, July 5, we expect movement within the range limited by levels 1.2612 and 1.2800. The Heiken Ashi indicator's reversal down signals a possible new downward movement wave.    

Rates Spark: We’re now in a holding pattern The ECB keeping rates on hold reflects what will likely be a common theme at next week's Fed and BoE meetings, and its dovish tone will find affirmation in upcoming inflation and growth data. But longer-end rates remain under the spell of US Treasuries, where supply is also a key driver.   The ECB delivers a dovish hold The European Central Bank kept interest rates on hold as widely anticipated but struck a slightly more dovish tone than expected. Importantly, the ECB refrained from shifting the focus to the balance sheet now rates are deemed sufficiently high. According to President Christine Lagarde, both the PEPP and the minimum reserve requirement were not even discussed.   Lagarde highlighted again that data dependency also means rate hikes could not be excluded, but she said any discussion about cuts was “totally premature”. That said, the undertone regarding the economy has become more cautious. Also, with regard to a potential spike in energy prices, she highlighted the uncertainty of their medium-term impact on inflation. Overall, market reaction in outright rates is more difficult to disentangle given the release of US data just ahead of the press conference. Very front-end rates, which should be less influenced by US spillovers, reflected the somewhat more dovish take and a firming notion that the ECB has reached peak rates already. The already minimal hike speculation reflected in ECB-dated OIS forwards for December was further trimmed, and the strip is downward sloping from then onwards to fully discount a rate cut by June next year.    Sovereign spreads initially reacted with relief, with the key spread of 10Y Italian government bonds versus Bunds briefly narrowing back below 200bp. Obviously, it is unlikely to be the end of the story, and the ECB could pick up the discussion at some point. Indeed, Reuters later reported that policymakers agreed to postpone the debate until the winter. and a discussion on minimum reserves was reported to come as part of the operational framework review.