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  • richard evans

Big day ahead with US inflation and then Fed rate announcement

Good morning

 

I was right when I said yesterday could well be quiet.  We did see a little USD strength through the afternoon which dragged GBPUSD down from 1.2745 to 1.2710 and EURUSD from 1.0770 to 1.0725, and as EUR suffered a little more than GBP, GBPEUR managed to push up to 1.1875 briefly, before settling back at 1.1855.  Since then both GBP and EUR have made very small gains over the USD, GBP slightly more so, now at 1.2740 while EURUSD is 1.0740, putting GBPEUR a few pips higher at 1.1865.

 

This morning we saw the latest UK GDP estimate which came in as expected at 0% against 0.4% last time, putting Q2 on track to show lower growth than Q1, as I’d mentioned yesterday.  We did also see UK industrial and manufacturing production this morning but despite coming in much worse than expected has had little impact on GBP. 

 

German inflation also came out early this morning, absolutely in line with expectations and as such largely ignored.  Elsewhere in the Eurozone, ECBs Lane has mentioned that despite seeing an overall decrease in the rate of inflation, wage growth remains elevated.  He seems to follow recent ECB officials in taking a mildly hawkish tone, or at least steering away from the idea of a linear rate cut path.  Meanwhile EU are set to impose additional tariffs on electric vehicles imported from China, despite warnings from Germany of potentially damaging retaliations by China.

 

Now, the remainder of the day could get interesting.  US inflation this afternoon, followed by the FOMC rate announcement this evening.  For CPI, the feeling is the headline will be similar to last months 3.4% reading, while it is hoped core dips to 3.5% from 3.6%.  By the time the Fed make their announcement they will have seen the inflation data.  No one is really expecting a rate cut this time, the key will be Powell’s speech and any forward guidance he may offer. 

 

We’ll also have the latest rate forecasts in the form of the ‘dot plot’ which is likely to show a move away from the lower end of expectations seen at the previous set of forecasts.  In March the dot plot suggested some 75bps of cuts through 2024, this is likely to show just 50bps of cuts but could potentially move as low as 25bps of cuts in 2024, given the slow progress inflation has made towards the 2% target. 

 

I have seen a couple of warnings about the exposure to commercial real estate for some regional US banks, this is not new, it rears its head once in a while, but I’m thinking the less rate cuts forecast, the more risk of CRE exposures becoming a bigger issue. 

 

Regardless, a weaker than expected inflation number will send USD lower, a higher reading will push it higher.  Fed suggesting two 25bps rate cuts in 2024 could see a lower USD, while a signal of just one 25bps cut is likely to send USD higher. 

 

In other news, I see Hunter Biden has been found guilty on all charges in his drugs/gun trial.  He could face up to 25 years in prison, but that’s unlikely to happen.  He has broken the law but it doesn’t seem severe enough to spend a quarter of a century locked away.  He’ll end up on probation I’m sure.  I guess if need be his Dad can simply pardon him, even though he has said he wouldn’t do that.

 

Hamas has made some tweaks to the latest US-backed Gaza/Israel peace proposal.  I’m not sure what the amendments are, but Israel have made it clear they regard this as a rejection of the hostage release proposal and as such I would think the likelihood of peace inches further away once again.

 

I’m on holiday soon.  Wwhile I’m looking forward to going away, I can’t say I’m looking forward to the flight.  I’m not a worried traveller but after the recent turbulence issue on the Singapore airlines flight, I saw that an Austrian Airlines flight was damaged by hail, bad enough to rip the front nose cone off and break the cockpit windows.  That can’t have been a pleasant experience for passengers!  Still, when I get there I am pretty certain to feel some warmth at last.  OK, we’ve had the odd day where its reached just over 20°c but those have been few and far between.  It was actually cold yesterday, I ended up putting the heating on for an hour. That’s not right in June!

 

I am actually out and about over the next couple of days.  I seem to have a habit of sitting at my desk for the quiet days and being away for major pieces of data, mind you so far we’ve not really had anything that has produced really aggressive moves, lets hope it stays that way.  I’ll be back some time Thursday afternoon, so in time for Friday’s report, but then I’m away on holiday for a couple of weeks. 

 

I’ll be leaving you in Marks exceptionally capable hands while I’m away, all I’d ask is that anyone with outstanding paperwork to complete, and there are a few, do try to get it back to us in the next couple of days so we I can deal with it before I go.  You know who you are!

 

Have a great day and I’ll be back in touch Friday, just in time for the start of Euro 2024.

 

-  10.30 ECBs Schnabel speaks

-  13.30 US CPI

-  14.00 ECBs de Guindos speaks

-  19.00 FOMC rate announcement

-  19.30 FOMC press conference

-  20.30 BoCs Macklem speaks

-  20.30 ECBs Nagel speaks

 

Thursday

-  02.30 AUS employment

-  10.00 EU industrial production

-  13.30 US PPI, initial jobless claims

-  17.00 Feds Williams speaks

-  23.30 NZ business PMI

 

Friday

-  02.00 AUS consumer inflation expectation

-  04.00 BoJ rate announcement

-  09.30 UK consumer inflation expectation

-  10.00 ECBs Lane, de Guindos speak

-  14.30 ECBs Schnabel speaks

-  15.00 US Michigan sentiment survey

-  16.00 US Fed monetary policy report

-  18.30 ECBs Lagarde speaks

-  19.00 Feds Goolsbee speaks

 

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