Euro Could Return Below $1.14 if Energy Prices Rise Further — Market Talk

0821 GMT - The euro could soon fall back below $1.14 if energy prices remain elevated, ING's Francesco Pesole says in a note. Expectations the European Central Bank will raise interest rates further have provided support to the euro but there is limited scope for markets to price in further tightening, he says. Markets price 45 basis points of rate rises by year-end, according to LSEG, and this pricing is unlikely to exceed 50 basis points, he says. Even at the peak of the spring oil rally, markets never priced the year-end deposit rate rising above 2.75% from 2.25% currently. "That suggests further oil price gains may increasingly weigh on euro-dollar." If the euro breaks below $1.14, the next key support level is $1.1330, he says. ([email protected])0758 GMT - Subdued wage growth in Britain strengthens the case for Bank of England interest rates to remain on hold, says Yael Selfin, chief economist at KPMG U.K. Headline wage growth excluding bonuses was unchanged at 3.4% in the three months through May, with little evidence that the recent rise in energy prices has fed through into pay settlements, she says. Private-sector wage growth is now running below levels consistent with the BOE's 2% target, as weak hiring activity continues to weigh on workers' bargaining power. "We expect the BOE to keep interest rates unchanged at next week's meeting, with developments in energy markets likely to play a bigger role in shaping the interest-rate outlook over the coming months," Selfin says. ([email protected])0751 GMT - New U.K. Prime Minister Andy Burnham can welcome June's better public-borrowing data, but the borrowing levels are set to rise as the incoming government spends, Pantheon Macroeconomics' Rob Wood says in a note. Data showed public sector net borrowing was GBP16.0 billion, lower than the GBP23.9 billion of June last year and consensus expectations, coming alongside downward revisions to April and May. But higher gilt yields and inflation than previously assumed will boost debt interest payments, and Burnham is already showing a preference to spend more to boost political support, Wood says. Given that an election is at most three years away with Labour Party support low, borrowing is likely to rise relative to forecasts, he says. ([email protected])0730 GMT - The war in the Middle East is expected to drag on, says Madison Cartwright, economist at CBA. CBA's base case suggests there is a 55% probability that the war will continue at the current intensity for at least the next 2 months, she adds. After two months, CBA expects that a diplomatic outcome will become more viable, and a deal to open the Strait of Hormuz can be negotiated. CBA assigns just a 15% probability to a diplomatic breakthrough and new ceasefire in the next two months.There is a 30% risk that the war escalates further in the next two months, she adds. ([email protected]; X @JamesGlynnWSJ)0729 GMT - Bitcoin rises to a one-month high as risk appetite improves on hopes for a de-escalation in the U.S.-Iran conflict. Mediators were working Monday to push the U.S. and Iran into a new ceasefire, The Wall Street Journal reports. It comes after the U.S. carried out a ninth straight night of attacks, Iran retaliated against U.S. Arab allies, including Kuwait and Bahrain, and another two vessels in the Strait of Hormuz were hit by projectiles. Bitcoin rises to a high of $65,956, LSEG data show. ([email protected])0724 GMT - Yields on U.K. government bonds, or gilts, stay steady after weaker-than-expected jobs data, which could reduce prospects of the Bank of England increasing interest rates. Payrolled employees fell by 4,000 in the three months to May, even as the unemployment rate stayed unchanged at 4.9%, below the 5.0% consensus forecast by economists in a WSJ survey. The data show "a still fragile jobs markets," Deutsche Bank's Sanjay Raja says in a note. Other data also showed improvements in public finances, with public sector borrowing for June at 16 billion pounds, 33.1% lower than the same period a year ago. Ten-year gilt yields are little changed at 5.030%, Tradeweb data show. ([email protected])0718 GMT - The U.K.'s new prime minister Andy Burnham faces a challenging labor market and tackling youth unemployment will be tricky, says Aman Navani of the Work Foundation at Lancaster University. "The labor market is proving particularly unforgiving for young people aged 16 to 24. Youth unemployment now stands at 16.4%, its highest level for 11 years, with around one in six young people seeking work." Starter job vacancies have almost halved in the last decade, he says. The government has set out to reform the education system, but it must also focus on the demand side. Concerted action is needed "to create more good-quality jobs and give young people a clear route into secure and sustainable work," Navani says. ([email protected])0717 GMT - The Reserve Bank of Australia is likely to keep interest rates unchanged, as easing economic conditions reduce the need for further tightening, says NAB senior economist Taylor Nugent. NAB projects second-quarter trimmed mean inflation at 0.9% on-quarter and 3.7% on-year. That would be a tenth below the RBA's May forecast, Nugent says. Headline inflation is expected at 0.7% on-quarter and 4.0% on-year, suggesting a lower peak for inflation than the RBA feared. The data is due at the end of the month. ([email protected]; X @JamesGlynnWSJ)0708 GMT - U.K. public sector borrowing for June fell 33.1% compared to a year ago to 16 billion pounds, offering reassurance to investors, RBC Capital Markets strategists say in a note. Government revenue increased while expenditure fell slightly in June. U.K. public debt remains elevated, however, leaving limited room for raising spending. ([email protected])0707 GMT - Malaysia's export momentum is expected to remain resilient in the near term, supported by strength across manufacturing and commodity-related sectors, as well as robust growth in intermediate and capital goods imports, CGS International economist Mas Aida Che Mansor says in a note. Continued artificial-intelligence-driven demand is likely to support exports of electronics and technology-related products into 2H, but reliance on the sector could become a risk once the global semiconductor cycle normalizes, she says. Energy-related exports are also expected to remain supportive, backed by elevated energy prices amid lingering geopolitical tensions and tight supply conditions, but growth could moderate if commodity prices stabilize further, she adds. ([email protected])0706 GMT - Sterling stays higher against the dollar and the euro, showing limited reaction to the latest U.K. jobs and public sector finances data. The unemployment rate held at 4.9% in the three months to May, whereas economists in a WSJ survey expected it to rise to 5.0%. Average earnings, excluding bonuses, rose 3.4% in line with the previous quarter's growth. Public sector borrowing was 16 billion pounds in June, down 7.6 billion pounds compared to a year ago. Sterling rises 0.1% to $1.3447 and the euro falls 0.1% to 0.8492 pounds, both little changed from levels before the data.([email protected])0705 GMT - The dollar falls slightly as hopes that the U.S. and Iran will agree a new ceasefire improve risk appetite and cause oil prices to ease. Mediators were working Monday to push the U.S. and Iran into a new ceasefire after Washington carried out a ninth straight night of attacks and Iran retaliated against U.S. Arab allies, The Wall Street Journal reports. However, the situation remains highly uncertain and the foreign exchange market has become less sensitive to geopolitical developments, instead focusing more on monetary policy. Markets have recently scaled back expectations for U.S. interest-rate rises following lower-than-expected inflation data last week.The DXY dollar index falls 0.1% to 100.902. ([email protected])