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26.07.2016 12:22

European session review: the US dollar on the back foot

The following data was published:

(Time / country / index / period / previous value / forecast)

8:30 UK approved applications for mortgage loans on the BBA figures, th. June 41.8 40.2 40.1

The pound rose markedly against the US dollar, fully recovering after falling in the first half of the session. Support for currency had BOE representative Martin Weale, which said it will vote in favor of encouraging the British economy. "After the publication of extremely weak data on business activity I have revised the views about the economic outlook".. Recall recently Weale said that need more evidence to consider voting for lower interest rates.

He will not give a clear answer to the question whether he would support a rate cut at the next BoE meeting on 4 August. This will be the second meeting of the Central Bank after the referendum. Recall, the Bank of England surprised markets in July, leaving interest rates unchanged, but the minutes of the meeting showed that most politicians are expected to support the launch of additional measures to stimulate the economy in August. "The Bank of England during the August meeting may announce new stimulus package, which may include a purchase scheme of corporate bonds in the secondary market, which has not been used since 2013". - Noted Natixis Asset Management experts.

A slight pressure on the pound from British Bankers Association (BBA) data. The report stated that the number of mortgage approvals fell in June to 40,103 compared to 41,842 in May. Experts forecasted the figure at 40 200. The last reading was the lowest since March 2015. "Banking data this month reflects the uncertainty that was felt on the eve of the EU referendum - says Rebecca Harding, chief economist at BBA -. Business borrowing fell in June for the first time in 2016, making it clear that investment decisions were postponed until the end of voting."

The euro rose against the dollar moderately, but then fell back to the opening level, on expectations of the Fed meeting. Given the recent statistical data on the US, as well as statements by some members of the Fed, interest rates this year may be raised at least once. However, experts do not expect that tomorrow. Rather, the July session may mark only some improvement in the tone of the accompanying statements under the influence of recent economic reports. Reuters latest survey found that just over half of the 100 economists expect the Fed to raise interest rates in the 4th quarter to 0.50-0.75 percent. The change is likely to occur in December.

Later today, investors' attention will be drawn to the statistics of the US, namely, the business activity index for the services sector, the index of consumer confidence, and a report on new home sales.

The yen has strengthened considerably against the dollar, reaching its highest level since July 14. The main reason for such dynamics were talks about new stimulus. Now the Japanese government says the program will amount of 6 trillion, of which $ 2 trillion is in the form of a supplementary budget. Earlier it was expected that the size of the program will amount to 20-30 trillion. In addition, the budget expenditures are likely to be financed by the supplementary budget, rather than by the Bank of Japan. This suggests that the Central Bank does not intend to use "helicopter money."

According to the Bloomberg survey, 78% of respondents expect easing. Most likely, at the upcoming meeting the Bank of Japan will decide to increase ETF purchases. Also was not ruled out further reduction in interest rates and increased government bond purchases.

EUR / USD: during the European session, the pair rose to $ 1.1029, but then fell back to $ 1.0990

GBP / USD: during the European session, the pair fell to $ 1.3056 and then rose to $ 1.3150

USD / JPY: during the European session, the pair fell to Y103.98

Market Focus

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  • Britain can't get full single market access with free movement concessions - Merkel
  • Earnings Season in U.S.. Major Reports of the Week
  • New Zealand CPI, 3Q: 0.2% q/q (forecast 0%), 0.2% y/y (forecast 0.1%)
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