Of Enrique Diaz-Alvarez, Chief Financial Risk Officer

US dollar stabilization faced a sudden blow last week when a junior Trump government official announced that the president is preparing to dismiss federal bank governor Gerom Powell.

Although it is not clear if Trump has the power to do so, the market reaction was immediate and fierce: for a few minutes the phenomenon of “sell America” was reappeared, which had shocked the markets last April – shares, bonds and dollars. Once again, the severity of the reaction forced the White House to withdraw: Trump himself hastened to deny that such a move was coming.

Although markets quickly recovered and the dollar managed to close the week with a slight rise to most coins, the episode reminded both the dangers of the “bullies” disruption of markets, as well as the decisive role that the markets themselves play.

Now that the issue of the leadership of the Federal Bank seems, at least temporarily, to have closed, the attention is again focused on the unpredictable news and commercial news news, as the August 1 deadline set by Trump. Beyond that, Thursday is foreshadowed as a day of intense volatility.

Both the ECB’s Monetary Policy decision on July and the PMI PMI business indicators in all major economies are announced. In addition, a series of secondary macroeconomic elements will contribute to the confirmation or denial of the narratives that are shaped: US resistance, slow but steady eurozone activity and alarming slowdown in the United Kingdom.

Sterling

The data published last week in the United Kingdom had a clear odor of stagnation. Inflation surprised upward, especially the most stable proponent of basic inflation. Inflation in services remains close to 5%. Unemployment has increased slightly, while the number of employees declined for a second consecutive month – although the huge decline of the previous month was revised upwards.

The frustrating data of recent weeks are reflected in the gradual slide of the pound against the euro, although it is maintained relatively stable against the dollar. The good thing about the United Kingdom is that PMI indicators withstand the late “real” financial data – so this year’s announcements are gaining increased importance.

Euro

The European Central Bank is expected to keep interest rates unchanged at Thursday’s meeting. Significant guidance for the future is not expected, leaving all the options open. As the interest rate reductions cycle seems to be almost completed, attention is now turning to the US trade war.

Markets gradually increase expectations for the amount of duties that the US may impose on European products, as talks seem to make slow progress and the deadline of August 1 is approaching. July’s PMI indicators are expected to demonstrate once again sluggish growth, but sufficient to maintain the economy close to full time.

US dollar

In addition to the headlines for Powell, the US economy continues to demonstrate resilience, even if the first indications of impact on duties appear on inflation. Retail sales, weekly unemployment benefits and industrial production exceeded expectations. Although inflation data did not abolish the estimates as a whole, the inflation of basic goods was somewhat stabilized – as a sign of partial duties, as it recedes the positive result of preventive storage.

Full employment, healthy demand, huge fiscal deficit and steady inflation are not compatible with milder monetary policy and we expect the Fed to resist Trump’s pressures and keep interest rates unchanged next week.