July was a relatively calm month in the foreign exchange market before activity exploded into life at the eleventh hour.
A wave of headwinds hit the US dollar all at once towards the end of last month. The main catalyst was the July meeting of the Federal Reserve, which failed to deliver the hawkish pivot that market participants had been anticipating. News of rare coordinated FX intervention in the yen between the US and Japan has further exacerbated the broad sell off as investors unwound long dollar positions. A weaker than expected second quarter growth figure out of the US did not exactly help the dollar’s cause.Andy Burnham has begun his stint as Britain’s fifth prime minister in four years, unveiling a blitz of policy announcements in his first few days in the job before disappearing on holiday after only a fortnight in Number 10 - a decision that has drawn a fair degree of criticism.
So far, the reaction in the pound has been orderly, with his appointment of John Healey as chancellor and commitment to the fiscal rules calming nerves. A handful of modest tax cuts have been announced, but concerns remain over how these will be funded and whether further tax hikes can be expected in the autumn. We have outlined more of our thoughts and detailed five things to look out for during Burnham’s premiership in the attached report. The Iran war, which incidentally now appears to be taking on secondary importance formarkets, has yet to deliver a fullpeace deal, although the latest soundbites have been upbeat and the Strait of Hormuz appears set to be reopened soon, even if only temporarily.Our base case remains for a peaceful resolution here, not least given that the Republicans are in need of some positive PR before the midterm elections.
Stay ahead of the market—read the full August FX report.
