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Strong US data and doubts over rate cuts continues to support USD

Good morning


US data continues to beat expectations to the upside, yesterday it was retail sales that came in better than expected, both in terms of the headline and also a revision higher to the previous reading.  Rather than send the US dollar scurrying higher, it served more as general support which capped GBPUSD near the 1.2500 area and similarly EURUSD around 1.0665.  Neither pair has seen those levels since, GBPUSD currently 1.2445 and EURUSD 1.0620, leaving GBPEUR at 1.1715.


UK unemployment numbers out earlier this morning didn’t offer much help for GBP, with the unemployment rate ticking up to 4.2% from 4% expected and a drop of 156k in the employment numbers.  From an inflation perspective, the average earnings held up at 6% and 5.6% (excluding and including bonuses).


USDJPY took advantage of that additional support for USD, the pair climbed to a high of 154.60 earlier this morning, now just a few pips lower at 154.45.  We’ve has the usual verbal intervention but nothing more serious as yet.  HSBC have chances of intervention at 5 out of 5 although I have seen others who, while the acknowledge the increased risk due to the weak yen, think Japan are more likely to seek support from the G7 at their June meeting.


The key issue for the time being remains the possibility of Fed rate cuts.  Feds Daly was the latest Fed official to make it clear Fed do not need to rush into rate cuts, preferring to be sure inflation is heading back to 2% before calling for easing.  Meanwhile, UBS have raised the possibility of US rates moving higher to 6.5% by mid-2025 if inflation does not recede.  This is not their base case, that remains for two rate cuts this year, but is something they see as a possibility.


The world is waiting to see what response Israel will make over the Iran attacks.  Everyone, US, EU and Iran included, are making it clear they see no need for escalation although Israel still vow some sort of response.  If further action is taken by Israel, Iran have said they would respond.  Seems to be in the hands of the Israelis at the moment.


Canadian inflation numbers are out this afternoon and we’ll hear from BoCs Macklem this evening.  For the record USDCAD is up at 1.3800, the highest level since November, while GBPCAD is 1.7160.


We have plenty of other central bank officials on the calendar today including Feds Powell who I believe speaks with Macklem this evening.  Several other Fed and ECB officials on the calendar, while BoEs Bailey is also in todays line-up.  He speaks ahead of the UKs latest inflation numbers that are out early tomorrow morning.  The market is looking for a drop in both the headline and the core readings, at around 3.1% and 4,1% respectively.


In other news, two items caught my attention. One was the furore over the Chinese runner He Jie who won the Beijing half-marathon but only after the three leading African runners all seemed to slow and wave Jie through, waiting for him to cross the line first.  Organisers are investigating the incident, although there is an attempt to say the African runners were in fact pacemakers rather competitors.


The other item was that a couple were divorced by mistake after a computer error at law firm Vardag.  A staff member opened the wrong client file when trying to finalise a divorce for a different client.  The courts have said the decision has to stand.  The newly divorced couple were separated and in the throes of negotiating finances before their divorce was to be finalised.  I’m not sure how the divorce impacts those negotiations but from what I read the husband seems happier with the mistake than the ex-wife who was the one who filed for the divorce. 


Finally, Chelsea have their hopes of European football next year a boost with an impressive 6-0 win over Everton last night.  They have a game in hand over Man Utd who are currently in seventh place, and would go ahead of them on goal difference if they did get the three points in their next match.  Mind you they have the small issue of the FA cup semi-final against Man City to contend with first, that’s this coming Saturday.  Before then it’s back to Champions League quarter-final action today and tomorrow.  The first legs were incredibly exciting matches, lets hope for more of the same. 


Have a great day.  Not sure its going to be warm and sunny, forecast suggests a wet afternoon, but hopefully will be less wet and windy than yesterday.  And we can do without the hail as well please!


-  10.00 German ZEW

-  13.30 US housing starts, building permits

-  13.30 BoC CPi

-  14.00 Feds Jefferson speaks

-  14.15 US industrial production

-  15.30 ECBs Nagel speaks

-  17.30 ECBs Villeroy speaks

-  17.30 Feds Williams speaks

-  18.00 BoEs Bailey speaks

-  18.15 Feds Powell speaks

-  18.15 BoCs Macklem speaks

-  21.00 ECBs Nagel speaks

-  23.45 NZ CPI

-  00.50 Japan trade

-  07.00 UK CPI, RPI, PPI


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