Global Themes

The U.S. dollar is showing stronger signs of another broad rally after Federal Reserve Chair Janet Yellen reaffirmed in a speech last week that she expected the U.S. to raise interest rates this year. Markets now see a higher chance the Fed could raise raises at its mid-September gathering. As markets get back to the basics of focusing on global fundamentals, the dollar has strengthened, reaching its highest in months overall, and its strongest in more than six years against the Canadian dollar. A light week ahead will see the release of U.S. housing data on both Wednesday and Friday. Markets are likely to use the coming week to prepare for the Fed’s next announcement on July 29.

EUR

Greek banks have re-opened today but capital controls remain in place to restrict money leaving the country. Meanwhile the Greek government is expected to make a €3.5bn repayment to the ECB today having been handed a short-term financing deal by the EU last week. However, the Euro is poised to set its fifth session of losses out of six against the US dollar today after ECB President Mario Draghi last week reiterated his commitment to boost the Euro Zone economy through a Euro-negative QE programme. The Euro is near a three-month low against the US dollar and may weaken further if Friday’s Euro Zone PMI surveys highlight economic damage done by the Greek crisis.

USD

The US dollar is showing stronger signs of another across-the-board rally after Federal Reserve Chair Janet Yellen reaffirmed in a speech last week that she expected the US to raise interest rates this year. According to some markets data, there is currently at 33% chance the Fed will hike rates in its September 17 meeting. As this expectation widens, the US dollar has jumped to its strongest since April against a currency basket and the Euro.

GBP

Last week the pound recorded one of its biggest weekly advances versus the Euro since 2010 after BOE Governor Mark Carney unexpectedly hinted that UK interest rates may need to rise as early as the end of 2015. Attention now shifts to meeting minutes from the BOE’s July policy meeting to be released on Wednesday July 22. It is likely that the MPC voted unanimously to keep rates at record lows earlier this month because of uncertainties related to inflation, Greece and China. The news could give investors reason to take profit on the pound’s sharp rally. The pound is trading at its strongest since March 2008 against a currency basket.

NZD

Markets are pricing in a ‘close to 90% chance’ of another interest rate cut in New Zealand on Wednesday July 22, taking the RBNZ’s cash rate to 3% from 3.25%. This expectation was the primary driver behind the kiwi dollar’s 4.5% plunge against Sterling last week to its weakest levels since September 2009. Sliding commodity prices and a Chinese economic slowdown could force the RBNZ to signal more future rate cuts in 2015. But a ‘cut and hold’ scenario on Wednesday night could allow the kiwi dollar to bounce back from recent selling pressure.