Politicians really make our life more fun and diverse. Especially investors who are fit to go to the hospital for treatment, for these elected, and not very, people talk to anyone in the grave will be reduced. The week had to start under the impression of foreign policy sketches of the White House, which not only routinely expanded sanctions against Russia but simultaneously imposed sanctions against China. Ostensibly for the reason that the Celestial Empire buys weapons from Russia. Not only that it is a country with the largest economy in the world, so the point is that China has not been engaged in such things for the first decade, and earlier, it did not cause such hysteria from the US. No, of course, they regularly expressed their dissatisfaction, but to bring sanctions, this did not reach. So, in the new working week, everyone came up with the idea that such a radical change in the behavior of the US is caused by the preparations for the war with the Celestial Empire. The oil poured into the fire and Beijing, who stood such a theatrical pause, that from one expectation I wanted to climb into a noose. China responded elegantly, stopping any negotiations with the US on trade issues. And if earlier uncertainty beneficially affected the dollar, then investors thought that the White House overbid the stick, and arranged a uniform sale of portraits of dead US presidents. But at the very end of the week, the dollar was able to win back its losses already at the expense of the European divorce proceedings. Not only that Angela Merkel during Brexit talks pretended that Theresa May does not exist at all, so even the Prime Minister of Great Britain on returning home began to actively complain and swear. The head of the government of the United Kingdom, angrily stamping her feet, hysterically screamed that Britain would not make any concessions, especially on the border between Northern Ireland and the rest of the Emerald Isle. This alone was enough to understand that only a few months before the British withdrawal from the European Union, the negotiations reached an impasse. But almost immediately, the Minister for Brexit Affairs spoke and said that the negotiations had reached a deadlock, as Europeans sweep aside all UK proposals that are "only adequate", in contrast to European ones.
It's funny, but in just one week, humanity saw that the traditional Anglo-Saxon approach to diplomacy, based on the principle that "there can only be agreements that are beneficial to us exclusively," somehow began to slip. As it affected the pound, it was clearly visible on Friday. Yes, and the dollar was cheap for the whole week.
However, one should never forget about the economy, which is clearly demonstrated by macroeconomic statistics. After all, politics is only a consequence of the economy.
Honestly speaking, the US statistics was quite good, although the significance of the data coming out is not so high. Thus, the number of construction permits issued dropped by 74 thousand, but the number of construction projects increased by 108 thousand. The number of initial applications for unemployment benefits decreased by 3 thousand and repeated as many as 55 thousand. Preliminary data on business activity indices showed the growth of only the production index, whereas in the services sector, and hence the composite index showed a decline. In Europe, the final inflation figures came out, which confirmed its slowdown from 2.1% to 2.0%. Also, the growth rate of the construction industry slowed from 3.0% to 2.6%. Preliminary data on business activity indices showed growth only in the services sector, but the decline in the production index was so significant that the composite index decreased. And in Great Britain, it was possible to be pleased only with inflation, which increased from 2.5% to 2.7%. But, as is usually the case, in the case of rising inflation, retail sales are declining, and this time, their growth rates have slowed from 3.8% to 3.3%.
Only the ruble showed steady dynamics, and during the whole week, it grew. This is largely due to the fact that in Europe, the dispute between Britain and the European Union is intensifying, and US behavior is beginning to frighten investors. Moreover, there were no sharp steps towards Russia, so the situation remained relatively calm. And, given the excessive oversold of the ruble, as well as the recent increase in the key rate of the Bank of Russia, demand for the ruble has grown considerably. Also, a series of statistical data came out, and they also slightly raised the mood of investors. Thus, the unemployment rate dropped from 4.7% to 4.6%, while the pace of retail sales accelerated from 2.7% to 2.8%. Only the growth rates of industrial production slowed from 3.9% to 2.7%.
The main driving force so far is the policy, and from all kinds of officials, it is better to expect another high-profile statement that will excite financial markets. And the most intriguing topics are Brexit and the US relationship with China. Obviously, we will hear a lot of comments about the negotiations between the UK and the European Union, which are likely to have a positive impact on the single European currency and the pound. In any case, the United Kingdom needs to find a common language in continental Europe, and after such harsh statements, everyone will calm down a little, and return to the negotiation process. But the US clearly respond to the demarche of China, because they are simply not accustomed to the fact that someone tries to impose their agenda on them. So, in the US foreign policy logic, the White House is forced to respond extremely sharply and aggressively, which will frighten investors even more.
The main event of the week will be the meeting of the Federal Commission for Open Market Operations. To be honest, we are approaching this meeting in a rather interesting atmosphere. Looking at the yield of interest rate futures, it is obvious that investors are 100% sure that the Fed will raise the refinancing rate. And this has long been taken into account in the dollar price. However, many media outlets and disinformation, with reference to a lot of "experts" and "analysts", say that the Fed will leave the refinancing rate unchanged. Not only is this contrary to the behavior of investors, so also to the words of representatives of the Fed. So, there is a feeling that before the meeting, because of the background, many will become nervous, which will lead to an increase in volatility and a decrease in the dollar, and right after the meeting, the dollar will start to rise rapidly, restoring imbalances. So, there are suspicions that the media banally mislead market participants, perhaps in the interests of certain financial circles. But do not write off and the development of events, in which the Fed will really leave the rate unchanged. Given that its increase has long been embedded in the price, if it is saved, the dollar will quickly lose its positions. It is also worth looking at the macroeconomic data, as they will allow determining the contours of the further actions of politicians from different countries. True, in the US, there is practically no meaningful data. Thus, sales of new homes may increase by 2.2%, and orders for durable goods by 1.7%. Also, the final GDP data for the second quarter should confirm the fact of accelerating economic growth from 2.6% to 2.9%. So, if there is no major force in the form of saving the Fed's refinancing rate, the dollar has prospects for growth.
Very little important data is released in Europe, and in fact, everything is limited to preliminary data on inflation, which may show its stabilization in the region of 2.0%. If these predictions are justified, then the cause for panic will be somewhat less. Preservation of inflation at this level reduces the risks of another extension of the quantitative easing program, which will contribute to the growth of the single European currency. But the results of the meeting of the Federal Commission for open market operations are much more weighty, and most likely, the single European currency will have to fall to 1.1650.
Forecasts for UK statistics are even better, as the number of approved mortgage loans should increase from 39,584 to 40,312, and the final GDP data for the second quarter may show the acceleration of economic growth from 1.2% to 1.3%. However, it is much more important how the events around Brexit will develop, and then, we should expect a decrease in tension, since they still need to sit down at the negotiating table. So, the UK can be indignant with the fact that Europe does not intend to take advantage of conditions that are favorable only for the United Kingdom, and Theresa May will have to make concessions. But not the fact that all this will happen this week, and the decision of the Fed on the refinancing rate is extremely important. Thus, it is worth waiting for the pound to fall to 1.3000.
With the ruble, everything is not so unambiguous, especially since no statistics are coming out. And they are not so important for the ruble. So, everything depends on foreign policy factors. But now, the United States has another headache, China. The demarche of the Middle Kingdom creates so many problems for the United States that they are not up to Russia right now. A weakening of tension, even temporary, has a positive effect on the ruble, so you can expect it to further strengthen, and the dollar has every chance to drop to 65.25 rubles. However, over the past week, the ruble was heavily overbought, and at least a little wind blows, as sales of the ruble begin. The reason can be any sharp statement from the White House. And if this happens, the mark of 66.50 rubles per dollar does not look final.
