United States Dollar: UK headline CPI for May printed in line with market expectations yesterday showing that prices rose at an annual rate of 0.1%. It’s better than last month’s negative headline but all other inflation indicators including producer prices, the retail prices index, core CPI (excluding food and energy) and the house price index all came in weaker than expected yesterday. The pound was sold on the news as these numbers didn’t exactly point to the Bank of England hiking rates anytime soon, certainly not any sooner than markets expected in advance of the release. GBP/USD fell to 1.5540 on the news, but there was good support close to the 1.55 big figure and it recovered as the day went on to push back through 1.56 and 1.5650, an odd move given that data from the US wasn’t particularly weak; Building Permits printed at 1.28m vs. 1.11m and Housing Starts printed at 1.04m vs. 1.10m (a little weaker than forecasts). A weaker euro and sales in the EUR/GBP aided cable’s recovery from its morning low on Tuesday and it’s held firm overnight to trade at 1.5640 currently. The focus today – except for the Greece situation – will be on the US FOMC statement. The last statement created quite a lot of volatility so this is something to be wary of come 7pm this evening. Investors expect Fed Chair Yellen to highlight the fact that the economy continues to recover but at the same time suggest that any change in monetary policy will be dictated by further improvements in economic data. They may also give clues as to if we should expect the Fed’s first rate hike in September, which is currently priced in at about 40%. UK employment and average earnings data will also be scrutinised closely this morning at 9:30.
We expect a range today in the GBP/USD rate of 1.5400 to 1.5800
Euro: Greece remains on the verge of default this morning and the language used by both Athens and it creditors is becoming ever more aggressive. Greek PM Tsipras said yesterday that lenders were trying to humiliate Greece whilst EC president Jean-Claude Juncker responded by accusing the Greek government of misleading its electorate. German 10 year yields dropped back to 0.8% as investor sentiment worsened. Weaker than expected German ZEW data released yesterday morning also weighed on the single currency and by lunchtime yesterday EUR/USD looked as though it might fall below the 1.12 big figure. This move came despite the positive news that the ECB had received the EU‘s highest court’s backing for its 2012 bond-buying program or the Outright Monetary Transactions program. EUR/USD has recovered mildly overnight to open this morning at 1.1275. The Greek saga will continue but investors will also be keeping a close eye on the FOMC statement tonight. It all makes for continued volatility in financial markets.
We expect a range today in the GBP/EUR rate of 1.3800 to 1.4020
Aussie and Kiwi Dollars: AUD/USD and NZD/USD have both lost ground overnight. Sell orders have been triggered on the way down and the rout has continued in the early European session. The currencies open in London at .7690 and .6935 vs. the dollar. There wasn’t much by way of any new economic data released from either Australia or NZ and both currencies have taken their lead from the worsening situation on Greece. Meanwhile, expectations for at least a further cut to the OCR from the RBNZ is undermining the kiwi, this feeling not helped by another weak milk powder auction yesterday. The two currencies are also weaker vs. the pound and GBP/AUD and GBP/NZD trade at 2.0360 and 2.2570 respectively.
We expect a range today in the GBP/AUD rate of 2.0300 to 2.0540
We expect a range today in the GBP/NZD rate of 2.2300 to 2.2800
AUD: RBA Bulletin
EUR: Italian Trade Balance, Final CPI y/y
GBP: Average Earnings Index 3m/y, Claimant Count Change, MPC Official Bank Rate Votes, Unemployment Rate, BOE Quarterly Bulletin, BOE Gov Carney Speaks
NZD: GDP q/q
USD: FOMC Statement, Federal Funds Rate, FOMC Press Conference
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