The US Dollar turned to the offensive after a slump in the beginning of the Monday´s session. Meanwhile, Gold fell sharply on news about the Italian bank’s bailout. As the talking heads of leading world economies gather at the ECB Forum to speak about the global economic outlook, traders may have a chance to get some clues regarding the future stimulus steps. BoE, ECB, and BoJ are likely to remain on the dovish side, while the FED is trying to ignore signals about the slowing of the extensive credit support in the economy. Growing demand for treasuries adds more gloom to the inflation outlook, while futures on the federal fund’s rate projects only a 43% chance of a hike in December.
Oil prices seek their recovery path to gain more than a single percent on Monday despite the continuing resurgence of the US Oil output, which thwarts the OPEC’s plan to bring supply and demand into balance. Last week, commercial inventories in the US decreased according to the EIA, but production continued to grow, remaining at a record high. According to the Baker Hughes Friday report, 11 oil rigs were additionally recommissioned last week signalling the expansion of the drilling activity in the US. OPEC, trapped by its own output pact has limited options to deal with the market’s oversupply. Options are to pressure Libya and Nigeria into curbing their production or to go for deeper production cuts. The Irani Oil Minister Bijan Zanganeh said last week that he doubts that countries outside of the cartel, such as Russia, would agree to cut supplies further.
The Pound gains foothold despite the risks of a governmental collapse, as the Conservative Party leader Theresa May could step down if she does not succeed in concluding a coalition with the Democratic Unionist party. Queen Elizabeth II allowed one week to form a majority in the government but negotiations stall as the DUP requires 2 billion Pounds for health and infrastructure in Northern Ireland. The Prime Minister is likely to be forced to make concessions, although the outcome of the negotiations is a big uncertainty for the financial markets. In the absence of important economic reports this week, key events to pay attention to the Pound traders political decisions, including negotiations of Brexit, progress in the talks of Conservatives with the DUP, as well as, voting in the House of Commons. Negotiations with the European Union will significantly depend on the publication of the May´s plan to protect the rights of European citizens remaining in the UK after the country leaves the EU.
The plans for the Bank of England’s monetary policy remain uncertain, as the dovish comments of Bank’s head Mike Carney were offset by the hawkish notes of the chief economist Andy Haldane calling for raising rates to slow the inflation acceleration. In addition to the Haldane, these views are shared by three more members who participate in the interest rate decision, so the chances for switching to a policy tightening remains quite solid. Nevertheless, the downside risks will predominate in the Pound’s dynamics, if the growing political tension in the country does not find an outlet.
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