15 June 2017 - Fed hikes but selling pressure still dominates
By Senior Private Client Dealer
United States Dollar
The US dollar released a raft of data yesterday including the all-important rate announcement. The greenback kicked the day off with the inflation number and retail sales. U.S. consumer prices, a measure of inflation, fell 0.1% in May, as a fall in energy prices, airline fares and apparel weighed on the pace of inflation, the labor department said. The measure of inflation missed forecasts of a 0.2% rise. Meanwhile, core retail sales sustained their biggest drop in 16 months to 0.3%, it was expected to rise by 0.1%. The Dollar was on the back foot immediately after the release and snapped lower against most currencies. Cable jumped from 1.2727 and broke 1.28, hitting a week’s high of 1.2806. Later in the day the Federal Reserve pushed ahead with the expected rate rise to 1.25%. The low inflation number could prevent the FED from raising rates further later in the year placing fresh selling pressures on dollar. Yellen tried her best to quash the theories and was reported saying, "It’s important not to overreact to a few readings, and data on inflation can be noisy." The facts speak for themselves though and current inflation numbers look a long way away from the 2% target. Deepening political turmoil in Washington also weighed on the greenback and U.S. Treasury yields, with the Washington Post reporting that U.S. President Donald Trump is being investigated by special counsel Robert Mueller for possible obstruction of justice. Following the FEDS announcement cable lost some of its gains made earlier in the day and broke back below 1.28, we currently move at 1.2729.
Sterling too had a busy day of releases where the main focus was around employment numbers. The U.K. Office for National Statistics said that unemployment rate was unchanged at 4.6% in April, in line with expectations and at its lowest level since 1975. The claimant count increased by 7,300 in May, compared to expectations for a gain of 20,300 people. The report also showed that the average earnings index rose by 2.1% in the three months to April, missing forecasts for a 2.4% increase. Excluding bonuses, wages rose by just 1.7% in the three months to April, compared to expectations for a 2.0% gain. Politics took a back seat yesterday following the terrible news of the fire at Grenfell tower. May did say in a statement that whilst talks were continuing with the DUP to form a coalition her priorities lie elsewhere following the tragedy. May also added that Brexit divorce talks, likely to be the most complex in Europe since World War Two, will begin as planned next week and her Brexit minister, David Davis, said Britain's negotiating position was unchanged. BOE rate announcement is the headline today for the UK, expected to remain unchanged and we again expect a 7-1 vote for an unchanged Bank Rate.
We expect a range today in the GBP/USD 1.2645 to 1.2807
In what has been an uneventful week so far for the Eurozone it was the same picture yesterday. German final CPI posted a -0.2% where a 0.5% increase was expected. Not really a market mover and gbp/eur failed to shift. Trading sideways for most of the day we open this morning at 1.1370. Elsewhere, Greeces debt woes continue to dominate headlines and today finance ministers meet to try an iron further measures that can help ease the pressures. The docket gets even quieter as the week comes to a close although Bloomberg consensus estimates suggest that there could be a downside revision to CPI data tomorrow. This would further withdraw expectations for ECB tightening.
We expect a range today in the GBP/EUR rate of 1.1330 to 1.1410
Aussie and Kiwi Dollars
The Aussie jumped on Thursday in Asia after a surprise bounce in May jobs and after the Federal Reserve laid out its forecasts for rates and trimming its balance sheet. Australia reported jobs data with the employment change for May surging by 42,000 jobs, well past the 10,000 new workers expected under a participation rate of 64.9, a tad above the 64.8% seen and a drop in the unemployment rate to 5.5% from 5.7% forecast. This has been the third consecutive months of strong numbers but still comes as a surprise. It’s certainly provided some welcomed support to the Aussie with GBP/AUD falling over 2% since the election, we currently move at 1.6745.
In New Zealand, first quarter GDP rose 0.5% on quarter, missing the 0.7% gain seen and at 2.5% on year, below the 2.7% expected. GBP/NZD advanced back above 1.76 to a high of 1.7652, this morning it has dropped and struggling to hold above 1.76. NZD/USD moved 0.8 percent to $0.7213, moving away from the previous sessions four-month high of $0.7319.
We expect a range today in the GBP/AUD rate of 1.6680 to 1.7010
We expect a range today in the GBP/NZD rate of 1.7450 to 1.7710
AUD: No data
EUR: Trade Balance, Eurogroup Meetings
GBP: Official Bank Rate, Monetary Policy Summary, MPC Official Bank Rate Votes
NZD: Business NZ Manufacturing Index
USD: Unemployment Claims, Philly Fed Manufacturing Index , Industrial Production m/m, Empire State Manufacturing Index
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