GBP/EUR 1.2522 (0.7986)
Geopolitical concerns are causing uncertainty in markets leading to demand for risk adverse assets and causing linked commodities to rise to multi month highs. Insurgency in Iraq has caused oil prices to reach fresh 9 month highs. Russia has also cut the gas supply to the Ukraine causing a pick-up in tension on this front.
The USD and JPY were out-performers yesterday as stocks struggled to find any footing. In the overnight session stocks in Asia continued to show uncertainty while the JPY and AUD were amongst the biggest losers. The AUD dropped after the RBA minutes suggested rates would be held at current record low levels with accommodative policy likely to remain in place for some time. GBP has remained firm throughout the first 36 hours of trading, following support from Carney’s speech last week.
Data was light yesterday from the UK but positivity carried through from Carney’s hawkish words on Thursday night. Further fuel was added to the fire when BOE member Miles, who is known to favour maintaining accommodative policy, suggested that he may vote for a rate increase before his term ends next May. These are certainly interesting words given the upward pressure GBP has been under but the pound may find rational to pull back if today’s inflation data remains subdued.
Consumer Price Index data leads the inflation print with the month on month reading expected to have grown at .2% through May, down from .4% in April, with the year on year figure falling to 1.7% from 1.8%. Anything in line with expectations is unlikely to cause too much of a stir across GBP crosses but price growth data from the UK has tended to be on the low side so far this year. Any indication the price growth pressures are subsiding, especially if they are being impacted by an overly strong GBP, may well see GBP give back some of the gains from last Thursday.
The EUR was on firmer footing yesterday but there was little in major news driving this strength. EURUSD was up some .3% against the USD , while it also clawed back ground (.5%) against the rampaging sterling. CPI data for the session came in line with the flash estimates with price growth declining .1% through May. Today’s European calendar is topped by the ZEW economic sentiment survey for both Germany and the Eurozone.
The USD was on a firmer footing yesterday, buoyed by some risk aversion due to political concerns but also lifted by stronger than expected industrial production data, rising .6% vs .5% expected, while the empire manufacturing release was also firmer than expected at 19.2 vs 15.0 expected, all this is added to the run of US data that has been firmer than expected through Q2. Later this evening our attention will turn to the US session and their release of CPI data.
Unlike the UK and Europe, US CPI has generally been improving and has been one of the readings surprising to the upside, firmer CPI will be encouraging for those USD bulls looking for the FOMC to speed up the pace of tapering, and bring interest rate increases even closer. The FOMC also start their two day meeting today, ahead of tomorrow evening release of interest rate policy, tapering and Janet Yellen’s press conference.