News of the defection of two more Republican Senators doomed the Senate attempt to replace and repeal America’s national health care. The failure to replace the system dubbed Obamacare, despite the Republican majority in both legislative chambers and the executive branch raises questions about the broader strategy of the Administration and raises serious questions about the rest of its legislative agenda.  

The US dollar was already trending lower against most of the major currencies, and the losses had accelerated following disappointing news on retail sales and uninspiring CPI. News of the failure of the Senate’s effort saw the greenback take another leg lower in early Asia, for which it has not been able to recover.    

Sterling is the main exceptions.  At $1.3025, it is off about 0.25% on the day. It had been participating in the broad move against the dollar, rising to new highs since last September (~$1.3125), until news of softer than expected UK inflation sent it down a little more than a cent. Judging from derivative prices, investors never took seriously the possibility of a rate hike at the next BOE meeting (August 3), but the softer CPI figures further reduced the perceived odds of a rate hike in H1 18.    

Sterling is posting a potential key reversal by making a new high for the move and then selling off through the previous day’s low.  A close below that low (~$1.3050) would complete the one-day reversal and point to losses that could carry sterling toward $1.2930 initially. Resistance in the North American session will likely be encountered in the $1.3050-$1.3060 area. There is a $1.3050 option strike for nearly GBP220 mln that expires today. 

UK consumer prices were flat in June, and this saw the year-over-year rate slow to 2.6% from 2.9%. Most expected an unchanged pace. The BOE’s new preferred measure, CPIH eased to 2.6% from 2.7%. Core inflation slowed to 2.4% from 2.6%. It is the first drop in the year-over-year headline rate since last October. While we suspect that the UK price pressures are near a peak, we wonder if today’s data is exaggerated by seasonal developments. In particular, we note that clothing and footwear prices fell 1.0%. This looks like summer discounting.