Citi

We think it's an appropriate characterization of price action this week, and the overnight session was no different. It was quiet as the Olympics kicks off and Japan market participants remained out. USD drifts slightly higher through the day likely as risk squares up heading into the weekend. Asia FX continue to struggle amid Delta variant headlines and meanwhile AUD was slightly negatively impacted by the accelerating COVID cases in Sydney.

Markit PMIs will be the highlight of the day, with preliminary prints for GBP, EUR and USD. Citi Economics expects UK services to ease slightly in July. We expect manufacturing PMI to also ease in the Eurozone but for services to strengthen. The July ECB Governing Council yesterday was slightly dovish but broadly in line with expectations, as the ECB reflected the new Strategy’s emphasis to be more persistently accommodative in a low-inflation world. RUB rate decision is coming up today where consensus now expects a 100bps rate hike.

ECB Review:

EURUSD traded choppy throughout the session, but ultimately weakened -0.2% to 1.1770.

–The July ECB Governing Council was slightly dovish but broadly in line with expectations, as the ECB reflected the new strategy’s emphasis to be more persistently accommodative in a low-inflation world.

–The main change is that the forward guidance indicates for present or lower rates until inflation is at 2% well ahead of the end of the forecast horizon, and notes the possibility of moderate inflation overshoots. But these changes are modest as markets are only pricing a hike at some point in 2024 and inflation remains subdued.

–We think the immediate market implications are limited but the Meeting reinforces the ECB’s position as one of the most dovish central banks, which points to EUR weakness against high-beta currencies as risk sentiment balances out, and a dovish ECB is helping sentiment to stabilize as we expected. The focus will now be on the FOMC next week and the ECB’s guidance for asset purchases into Q4.