As data releases for the week begin to pick up steam, the United States Dollar starts the morning gaining steam against all G10 currencies.
Overview
CPI data out of both the UK and the Eurozone show that the worldwide inflation crisis may be beginning to moderate, which is welcome news for the UK economic picture especially. While the Eurozone’s picture remains a bit murky as core prices showed continued stickiness, the UK picture showed clear signs of disinflation. Tentative risk sentiment kept price action muted throughout yesterday, but today the story is all USD positive.
Markets have fully priced in a 25 basis point hike from the Federal Reserve next week, but the picture after that remains quite unclear. Though several Fed officials have reaffirmed the central bank’s commitment to one further hike after July, markets are hesitating to take the bait, and the odds of a second hike sit around 50 percent. June retail sales from the US also provided a small boost to USD yesterday and today, as core sales data came in above expectations while the “headline” measure is undershot. This mixed bag is reading well for the Dollar, showing a resilient – but not overheating – economy.
What to Watch Today…
- No major economic events are scheduled for today
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GBP ⇓
Pound Sterling, on its longest losing run since May, fell a further percent against the Greenback overnight after the release of UK CPI showed real signs of disinflation in the region. All measures came in below expectations; June’s monthly reading showed an increase of just 0.1%, and the annual figure came in at 7.9%, the lowest in over a year. While undoubtedly good news for the UK’s macro picture, this is prompting traders to sharply reassess their bets for the Bank of England’s terminal interest rate of this cycle and bringing GBP back down from its 15-month high last week.
JPY ⇓
After a reasonably short-lived run of strength, the Japanese Yen is on the back foot this morning to the tune of a half-a percent loss against the USD. Even after Bank of Japan Governor Kazuo Ueda over the weekend again mentioned a potential shift in the central bank’s approach, market bets on such a pivot are fading, and expectations for any policy tweak at the meeting next week have largely faded. Perceived economic weakness from China is also providing some downside for Yen.
