Tapering ahead

It was the turn of the US dollar to head the major currency field on Wednesday. The American economic data were no great shakes but there was another sign that the Federal Reserve is talking about thinking about winding down the pace of stimulative asset purchases, AKA “tapering”.

The man of the moment yesterday was Dallas Fed President Robert Kaplan. He advocated an early start to the tapering process, not least to avoid more dramatic cuts if it were to be delayed. While Mr Kaplan thinks inflation will fall to 2.4% in 2022 from 3.5% this year, he sees an “upside risk” to that forecast. The dollar touched a 15-month high against the Japanese yen and cemented its position as June’s top-performing major currency with an average gain of 2.7%.

Another central banker in the spotlight on Wednesday was Andy Haldane, the Bank of England Chief Economist, on his last day at the bank. He spoke about his three decades at the Old Lady. It was an entertaining ramble around forecasting, monetary policy, forward guidance and regulation. A key aspect of Mr Haldane’s valedictory address was a warning about inflation. He said the threat of a rapid increase in prices was “rising fast”. Sterling was unaffected by the speech; it is an average of 0.2% firmer on the day.

Eurozone inflation

Following Britain’s GDP figures there was nothing particularly useful to investors among the rest of the day’s ecostats. The most important during the London day were Eurozone consumer price index numbers.

The flash estimate of Eurozone inflation put it at 1.9%, exactly in line with the European Central Bank’s target of “below but close to 2%”. Investors seemed unimpressed: the euro lost ground following the data, though not necessarily because of it.

Canada’s industrial product and raw materials price indices looked aggressive, with costs 40.1% higher on the year and factory gate prices up by 16.4%. The price of sawn softwood (lumber) increased by an annual 235.5%. In the States, pending home sales “rebounded strongly in May, reaching the highest reading ever for the month of May since 2005”.

PMIs and Mansion House speeches

On the first of the month the main topic, as always, is manufacturing sector purchasing managers’ indices. The first two, from Australia, diverged slightly: AiG reported a record high of 63.2, while Markit saw growth easing to 58.6.

Japan’s manufacturing PMI was the lowest in four months at 52.4. The yen was unruffled. Britain’s reading is expected to be in line with the provisional figure of 62.4 and the two numbers from the United States are pencilled in at 62.6 and 61.0.

This morning, the Chancellor of the Exchequer and the governor of the Bank of England will deliver their annual speeches at the Mansion House in the City of London. The occasion is an opportunity for both to set out their hopes and ambitions. Rishi Sunak’s chosen subject will be his plan to make the UK the most "advanced and exciting" financial services hub in the world once again.