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  • richard evans

GBPEUR higher, for once at a decent level before my holiday. See you in a couple of weeks

Good morning

 

US inflation back on Wednesday came in lower than expected, leading to a bout of USD weakness that saw GBPUSD trade up to 1.2860 and EURUSD up to 1.0850.  A hawkish FOMC rate meeting, which lowered the number of indicative rate cuts in 2024 from three last time out to just one this time, then served to push the USD higher and by close of play yesterday both GBPUSD and EURUSD were below the pre-CPi levels, at 1.2750 and 1.0750, indeed as I type they are 1.2730 and 1.0705 respectively.  This came despite softer than expected US PPI numbers yesterday, we did see a brief USD sell-off on that release but it didn’t last long. 

 

So although this latest set of inflation data from the US suggests its moving in the right direction, the Fed are not comfortable enough yet to be thinking of rate cuts.  They’ll need to see a few months of similar data to give them confidence that lower inflation is sustainable before cutting rates.  Powell suggests the Fed is expecting good, but not great, inflation readings in the coming months, which explains why they are cautious with rates. 

 

It is worth noting however that had we seen just a couple of different ‘dots’ the median would have been for two rate cuts and things would have been a little different.  Indeed, I think the dots were entered by Fed officials before they had seen the inflation numbers, so it is more than possible that had they waited we could have had a median suggesting two rate cuts, which would have given a very different spin on the FOMC announcement.  Perhaps it wasn’t quite as hawkish as the market read into it.

 

The Euro continues to struggle against GBP after the ECB rate cut, the EU election results and the news that parties on the left in France may seek a coalition called ‘Popular Front’ in an effort to counter the right wing National Rally in the upcoming snap election, which puts Macron in a very difficult position in the middle.  GBPEUR is now up at 1.1890, I do wonder whether GBP will also come under pressure as we near the UK elections but so far GBP is holding up well.

 

The US Dollar has not been greatly impacted by the news that Saudi Arabia will be open to settling oil transactions in currencies other than USD, such as Euro, Chinese Yuan and Japanese Yen, and perhaps even some crypto currencies.  This is a fairly significant shift in global oil trade and should see demand for USD drop, given countries that import oil may no longer need US dollars to pay for their oil.  China is a huge importer of oil and will certainly prefer to trade in CNY than USD. 

 

Overnight we had the BoJ rate announcement, no surprise that rates were kept on hold as widely expected, but we have seen some Yen weakness after BoJ failed to come up with a detailed plan on reducing bond purchases.  They did announce a reduction but said they’d only announce details at the next meeting at the end of July.  Many regard this as making a rate rise at that meeting less likely.  USDJPY is up at 158.00, we look out for any further intervention but lasting USDJPY declines will really need BoJ rate rises and Fed rate cuts. 

 

In other news, BBC are reporting some 6,000 possible illegal raw sewage spills in one year.  Water companies are allowed to discharge untreated sewage into rivers and seas when it rains but are not allowed to do so in the dry.  The BBC suggests far more is discharged in dry days than previously reported, although the water companies dispute the findings.  I have no time for water companies, many of whom have borrowed huge sums of money, failed to invest appropriately in their infrastructure while still paying hefty dividends to shareholders.  Daylight robbery.

 

On the subject of large payments, hats off to Elon Musk who has seen his Tesla shareholders agree a US$55bn payout that had previously been stopped by a Delaware court.  Tesla shares haven’t done so well recently, trading at less than half their peak value from 2021 after a fall in profits and thousands of job cuts.  It’s a huge sum of money to be paid, OK he did create the company and has steered it to success, but $55bn?  That’s incredible. 

 

I’m on holiday from this weekend.  Like many I am a bit fed up with this cold weather and I’m looking forward to feeling some proper warmth on my face.  I’ll be missing next weeks all-important day for the UK, with inflation on Wednesday and BoE rate announcement Thursday.  No rate change is expected from BoE, although there is hope that both headline and core inflation will come in lower than last month.  I’ve seen suggestions we could be looking at a headline around 2%, down from 2.3%, and a core reading as low as 3.4%, from 3.9% last time.  I’m not sure even those would be enough to encourage BoE to consider a rate cut, we’ll see from the vote split whether any members join Ramsden and Dhingra, they voted for a rate cut at the last meeting in May, the remainder voted to keep rates on hold back then in a 7-2 vote split.

 

The Euro 2024 tournament begins today with Scotland taking on hosts Germany in the first match.  I have every reason to think this could be a terrific tournament.  We may not see big results, matches are likely to be tight and niggly at times, but I’m sure we’ll see some upsets.  England are still favourites, but odds have lengthened to 4-1, almost the same as second favourites France.  Portugal at 7-1 looks like a decent bet, as does Italy at 18-1, although they have a tough group to get out of, with Spain (5th favourite at 9-1) and Croatia (ninth favourite at 45-1).  I’d love to think England can win, on paper we have some great players, but I’m just not sure we’ll have the experience.

 

I hope the next couple of weeks goes smoothly for you in the world of currencies.  Remember, we are here to take the headache out of managing your currency requirements, whether you simply need to purchase or receive other currencies once in a while or whether you need to buy or sell other currencies in high volumes.  Of all the things you may need to worry about, our aim is to ensure that currency management is not one of them.  Our top-notch service remains the same even when one of us is away.

 

Have a great couple of weeks, back in July, just in time for the general election!

 

-  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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