The last ten days have seen the euro-dollar parity oscillate in the range it has stayed in since the end of May, i.e., between 1.1550 and 1.1800. On July 26, the European Central Bank maintained its monetary policy as expected. On this occasion, Mario Draghi expressed his optimism for the economy, especially as concerns growth, inflation and wages. He went on to say that there was no ambiguity about the first rate hike that was to occur only after the end of summer of 2019. This statement has somewhat cooled the markets and the single currency, which had reached 1.1750 began to fall towards 1.1600. The hopes of a more hawkish message thus vanished, and the prospect of a first hike for September 2019 became the preferred scenario. Then on August 1, it was the turn of the Fed to hold its monetary policy meeting. After the statements of Donald Trump, those of the US Central Bank were particularly expected. In its press release, the institution stressed the strong growth of the US economic activity as shown by the figures published a few days before. Gross domestic product growth reached 4.1% in the second quarter, the largest increase since the second quarter of 2014. The markets are still counting on an additional rate increase in September and most likely one more in December. This would bring the total to four this year. For 2019 the expectations are three to four additional increases. On Friday, US employment figures turned out to be balanced. An improvement in the unemployment rate was offset by fewer job creations.

Last Thursday, the Bank of England rose, as expected, its key rate by 25 basis points, from 0.50% to 0.75%. It is significant that this decision was taken unanimously by the members of the committee. At first the pound benefited from the decision by increase above the 1.3100 bar against the dollar but the effect faded quickly and the British currency plunged back under 1.3000. Uncertainties about Brexit remain very strong. On Monday, Britain’s international trade minister has estimated at 60% the chances that negotiations will end without agreement. Liam Fox strongly criticised the European Commission, which he blames for the blocking of these negotiations.

The Swiss franc rose slightly amid trade tensions between Beijing and Washington, and political tensions in Italy where Prime Minister Di Maio has said that the respect of the tax rules, so dear to Brussels, would not be a priority in the preparation of the next budget. The franc, which had traded for as much as CHF 1.1700 to the euro in mid-July is back to 1.1500.

The Turkish lira continues its descent into the ground and keeps on being the source bad news. Inflation jumped to 15.85% on an annual basis against 15.39% in June according to data released Friday. This is a figure not seen since 2003 as the economy is under pressure and has to deal with tensions with the United States and the sanctions imposed by the Trump administration following the arrest of an American pastor accused of terrorist activities and espionage. The Turkish currency fell more than 6% on Monday to hit record lows against the greenback at 5.4222 lire to the dollar.

On the economic agenda we will have US inflation data, that is, the producer price index tomorrow and the consumer price index the day after that. But what will mainly hold the attention of the various markets, including the currency, bond or stock markets, is the escalation of tensions between the United States and its various trading partners following the warning made yesterday by President Trump to the countries who would persist in trading with Iran after the reinstatement of sanctions against Tehran, and the escalation of tariff between Washington, Brussels and Beijing.

Levels

EUR/USD  1.1615 DOW JONES 25’628.91
USD/CHF  0.9945 SMI 9‘201.22
EUR/CHF  1.1550 BRUT 69.20
USD/RUB  63.51
XAU/USD  1’213.00