Headlines
UK CPI rebounds to +0.1%
– Sterling ticks higher.
‘Grexit’ fears weigh on Euro
– GBP/EUR hits 2-week high.
‘GBP/USD at 3-week high
– Fed rate statement on tap.
GBP/AUD at new 71-month high
– GBP/NZD at fresh 4-year high.
Sterling
The Office for National Statistics (ONS) reported that British inflation bounced back into positive territory last month after dipping below zero for the first time in 55 years during April. The on-target +0.1% print featured a rise in air fares, which had fallen in April due to the early Easter Holiday period, and an uptick in fuel prices, as oil prices continued to rebound following last year’s steep plunge.
Markets were generally happy with the result and the Pound began to rally mid-morning. However, a lower-than-anticipated core consumer price index reading of 0.9%, compared to forecasts of 1.0%, did lead to a temporary dip in demand for Sterling.
Unemployment is predicted to print at a joint-six-and-a-half-year low of 5.5% later this morning and wage growth is tipped to rise from 1.9% to 2.1%. The Bank of England is also due to release its latest minutes report, which is likely to show that all nine policymakers voted against raising rates in June. As long as the labour market data prints inline with expectations and the BoE report doesn’t feature any overly dovish rhetoric then Sterling could easily rally versus some of the majors during today’s session.
Euro
The Pound to Euro exchange rate strengthened by around a cent yesterday to strike a fresh fortnightly high as escalating ‘Grexit’ fears continued to weigh over the single currency.
Greek PM Alexis Tsipras refused to give in to his lenders’ demands and instead lambasted them for pursuing further austerity, which he said would equate to the ‘financial strangulation’ of the nation and ‘humiliation’ of the Greek people. He branded the latest proposal from the institutions as ‘absurd, unrealistic and unacceptable’ and suggested that the IMF has a ‘criminal responsibility’ for the mistakes made in previous bailout programmes that exacerbated the crisis in Greece.
Although Tsipras’ speech appeared to leave him with nowhere to go in debt negotiations, there was an underlying message that European lenders should accept what the IMF has already called for and sanction a restructuring of Greek debt. So despite the political rhetoric, there is still a possibility that a deal will be agreed upon.
US Dollar
Sterling rose to a fresh three-week high against the US Dollar yesterday on the back of May’s CPI report, which saw inflation bounce back into positive territory following a month-long foray into the red.
However, there is potential for large swings in GBP/USD this evening. The Federal Reserve is due to announce its interest rate for June, which is largely expected to remain at 0.25%, but investors will be more interested in the latest Fed funds projection graph. If the report shows that a rate hike looks likely in September of this year then we could see a massive surge in demand for the ‘Greenback’. However, if the report conveys a dovish message and it looks as if rates could remain at rock-bottom levels for the remainder of the year then we could easily see Sterling stretch its recent gains versus the US Dollar.
Canadian Dollar
Sterling struck a three-month high against the Canadian Dollar yesterday following the UK inflation report. However, the commodity-sensitive ‘Loonie’ managed to recover some of its losses during the evening as crude oil prices grew on concerns that Tropical Storm Bill could halt oil production in the US.
But the Pound could push ahead again if this morning’s labour market report bodes well for an interest rate hike in the first quarter of next year.
Australian Dollar
The Pound to Australian Dollar exchange rate rose to a fresh 71-month high yesterday as improving UK inflation prospects helped drive demand for the world’s oldest currency.
During the Asian session the Reserve Bank of Australia intimated that it intends to wait on the sidelines to ‘assess information on economic and financial conditions as it becomes available’. The minutes report left the door open to further easing in the future but, because it didn’t specifically pave the way for another rate cut, the ‘Aussie’ Dollar didn’t lose any ground versus the Pound.
New Zealand Dollar
The ‘Kiwi’ Dollar succumbed to another 100-pip daily decline against the Pound yesterday to strike its lowest trough for over four years. The downtrodden New Zealand Dollar struggled to draw investment from traders following the seventh straight decline in dairy prices at auction, with the average payout to farmers down a further-1.3% on this occasion.
Data Released Today
09:30 GBP ILO Unemployment Rate (3M) (APR)
09:30 GBP Average Weekly Earnings (3M/YoY) (APR)
09:30 GBP Bank of England Minutes
10:00 EUR Euro-Zone Consumer Price Index (YoY) (MAY F)
19:00 USD Federal Open Market Committee Rate Decision (JUN 17)
23:45 NZD Gross Domestic Product (QoQ) (1Q)
23:45 NZD Gross Domestic Product (YoY) (1Q)