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US PCE today, then attention turns to central bank meetings in June

Good morning


Not the most exciting day ever yesterday, the markets pretty much ignored the very much in-line US GDP numbers and instead chose to focus on the US PCE release later today.  The US dollar lost its gains from the day before, GBPUSD trading up to 1.2745, EURUSD to 1.0845.  Since then both pairs a little lower at 1.2715 and 1.0825.


GBP has lost a little against other currencies, GBPEUR is down a few pips to 1.1745, GBPAUD is 1.9155, GBPNZD slipped back to 2.0750, but we’re within the same ranges as we’ve been in for the rest of the week.  GBPZAR is bucking the trend, trading up to near 24.00 as ANC performs poorly in the elections and looks set to lose its majority.  Overnight USDJPY moved lower on higher than expected Tokyo CPI numbers, moving from 157.00 to 156.60, but has since managed to regain all of those losses.


Today could be more interesting, with the US Core PCE deflator out this afternoon, one we know the Fed watches closely.  EU inflation in the morning and Canadian GDP may cause something of a stir but the PCE is the key today, that’s for sure.


Next week we are in June, which certainly has the potential to be lively.  We will have EU retail sales and GDP.  We’ll also have US employment numbers in the form of ADP, JOLTS and Challenger coming out through the week, culminating in the nonfarm payrolls on Friday.  The latter is usually the main event for the week, however I have feeling it could be eclipsed by both the BoC and ECB rate announcements on Wednesday and Thursday respectively.  Both are poised to cut rates 25bps which would leave CAD rates at 4.75% and ECB rates at 4.25%.


In terms of market impact, an ECB cut is surely priced in more than BoC, as such I’d expect less initial market impact for EUR.  CAD has greater potential to weaken on a rate cut but the reality is it that it will be the press conferences from both that will likely dictate the fortunes of both currencies.  For the record, EURUSD is 1.0845, GBPEUR 1.1745.  USDCAD is 1.3670, GBPCAD 1.7375.  EURCAD is 1.4795, I guess based on what I’ve said above I’d have to expect that to push a bit higher if they both cut rates.  Recent high was 1.4880 just last week, before that we have to go back to Nov 2023 when it had reached a high around 1.5045.


30 cad pips would buy the Monday expiry 1.4775 /1.4825 strangle.  There must be a chance for the pair to break out of the recent range given the potential volatility over the rate announcements.


In other news, Trump has been found guilty on all counts, the first ex-President to be convicted of a crime. I guess ordinarily he would be facing a jail sentence, however i presume this will be delayed, postponed or even cancelled were he to become President again.  Sentencing is set for 11th July. 


The Russian invasion of Ukraine is at risk of escalating, with US allowing Ukraine to carry out strikes with US weapons inside Russia.  Russia has previously warned of severe consequences should Western weapons be used on Russian territory but with the situation looking pretty dire for Ukraine, it seems to be a case of needs must.  Meanwhile in the Israel/Gaza conflict, Hamas has suggested it is ready to come to an agreement to return hostages in exchange for prisoners, but only if Israel stop their attacks.  I think we know that Israel will need more than that before they stop their military activity.


With little else to offer I’m going to bid you a good weekend.  I’ll be packing the car up and heading off to play 3 ½ rounds of golf over the next three days which sounded fantastic when I signed up for it but now seems rather foolish.  Still, I’ve known the guys I’m playing with some 35+ years, we used to play football together and its great when we all get together.  When we started this golf weekend lark, I’d look at the groups of older guys who would be at the same venues, thinking how lucky they are to still be playing with their mates.  We’re at that stage where we are probably those old guys in the bar!  Still, plenty of beer, golf and talking about our footballing exploits never did anyone any harm. 


We’ll be in June by the time we get back to our desks on Monday, just where has the time gone?  June is a big month for central bank meetings, I’ve mentioned ECB and BoC above, we’ll also have Fed on 11th June and BoE on 20th June, so should be plenty to keep us on our toes.  I’m not sure I’ll be able to be on my toes after this weekend but I’m hoping I’ll be able to move enough Monday to write an update.


Have a great weekend


-  10.00 EU HICP

-  13.30 US Core PCE, personal income/spending

-  13.30 CAD GDP

-  14.45 US Chicago PMI

-  23.15 Feds Bostic speaks


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