Global Themes

  • UK inflation kick starts another big day
  • Dovish or Hawkish rate hike key
  • Poor economic data restraining the Euro

GBP

UK inflation kick starts another big day 

CPI data is released at 9:30am this morning, with inflation forecasted to have risen by 2.5% y/y for the month of May. Sterling needs a boost from a higher inflation number, to increase the odds of the Bank of England (BOE) raising interest rates this year, after disappointing wage data yesterday. Wage growth rose by 2.5% and 2.8% excluding bonus, missing the forecasted 2.6% and 2.9% respectively. GBP/EUR will need inflation to at least hit the forecasted figure to allow another run at €1.14. GBP/USD has moved back into the mid $1.33 handle, after failing to hold $1.34 yesterday.

  • In the House of Commons last night, after a long day of debating and deals, the government defeated one of the amendments from the House of Lords that would give MP’s a vote to overturn the Brexit deal made if they did not agree with it. However, it is believed that in the talks made with pro-remain MP’s, they would get ‘’input’’ into the government’s decision if a no-deal scenario were to happen (source: BBC). Justice minister Phillip Lee resigned during the day, citing that he felt he couldn’t support the government’s Brexit position. This seems unlikely to result in more high profile resignations, unless the government get a shock defeat today when the amendment on the UK’s membership of the EEA is voted on.


USD

Dovish or hawkish rate hike key 

This evening the Federal Reserve (Fed) will round up its two-day policy meeting with an interest rate announcement and press conference. The majority of market participants already expect the central bank to raise interest rates for the second time this year, by another 25 basis points from 1.75% to 2% (source: CME). What could be the key market mover is when Fed Chair Jerome Powell holds his press conference at 7:30pm. Market participants will be monitoring his remarks for signs of any additional projected rate hikes scheduled for this year.

Yesterday saw the US inflation number beat expectation which helped steady the dollar, arguably prompting market participants to feel the US economy is in a healthy enough position for the Fed tighten policy at a quicker pace. However, with emerging market concerns, this could cause the Fed to hold back for now on any future rate hikes. Emerging market currencies tend to benchmark themselves against the US Dollar, which if it continues to strengthen could impact their economies as many rely on having weaker currencies to allow for exporting. If Mr Powell feels the need to hold off, we could see a dovish hike this evening which could lead to a sell-off in the dollar.

  • EUR/USD continues to fall, trading closer and closer to the $1.17 handle, and GBP/USD this morning has erased all of Sterling’s gains from yesterday, with $1.3350 printing. Should speculators continue to buy into the dollar ahead of this evening’s meeting, we could see some psychological levels tested. For EUR/USD, a fall and break past $1.1655 could see further acceleration to the downside, with $1.1516 (11-month low) as a possible target level. On the upside for EUR/USD, the gains could be capped at levels around the $1.19 mark. GBP/USD is trading close to the lower end of the 2018 range, but this does not rule out any further potential downside. We trade around $1.3350 this morning, but should the dollar buyers hit the market hard we could certainly see $1.32 tested, and a break below that could trigger plenty of stops, with the potential to see $1.30. Upside could be on the cards, but it seems the $1.35 has again become a level of resistance for markets. Overall GBP/USD seems to be on an upward trend, but with significant data releases today we could see a break to either the upside or downside occur.

EURO

Poor economic data restraining the Euro 

With the European Central Bank’s (ECB) policy meeting on Thursday drawing closer, volatility in the currency market appears shelved for the time being. Since this week’s open, EUR/USD has bounced between circa $1.17 and $1.18 and currently floats in the middle of this range, where it began the week. GBP/EUR has displayed similar idle moves, slipping towards the €1.13 handle before scaling its way back up towards €1.14. Market participants are likely cautious of taking too aggressive positions in the market ahead of the above-mentioned key risk events.

The Euro has had a reasonably strong start to the month, after dragging its heels around the $1.15 level against the dollar at the end of May. However, the poor German ZEW surveys released yesterday added to the blocs run of lacklustre economic data, and scuppered any further Euro gains. It could be argued that as a result of this poor data, the ECB might fail to deliver any meaningful information on when it will end its current bond-buying programme at tomorrow’s meeting.

  •  This morning, attention shifts to Eurozone industrial production for the month of April which will be posted at 10:00am. An expected fall to -0.5% from the previous print of 0.5% could continue to hurt the Euro.


*The rates displayed by our free currency converter are neither "buy" nor "sell" rates, but interbank rates, the wholesale exchange rates between banks. Interbank rates don’t include the spreads, handling fees, and other charges that may be assessed by foreign exchange providers. Please note that, as such, these rates are provided for indicative purposes only. Prior to booking a transaction, Western Union Business Solutions will advise you of the actual rate then available for a particular currency transaction.

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