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With Cable Teetering Focus Turns To This Morning’s UK Inflation Data.

By Alex Edwards

The US dollar has strengthened again over the last 12-24 hours, supported in part by safe haven demand. Markets have moved out of risk overnight as Trump said late yesterday that a meeting with North Korea’s Kim Jong-un may be delayed. This news is weighing heavily on GBP/USD this morning with the pair trading close to 6 month lows.

In other news yesterday the UK Inflation Report Hearings came and went. We heard nothing much new and it was a bit of a snooze fest if honest. Carney reiterated how the central bank would be monitoring data closely but failed to signal any likelihood of a rate hike in August, and although it shouldn’t have come as too much of a surprise, cable was sold. Later in the day US economic data printed better than expected and the GBP/USD sell off was reaffirmed.

Focus this morning turns to UK inflation data and with cable teetering, an August rate hike priced at 50:50 and few clues given away at yesterday’s hearings, it makes this data release even more important than usual. Given the slide we’ve seen in GBP/USD over the last few weeks, there’s an argument to say risk is to the upside, but there’s still plenty of room for a further sell off in GBP/USD as we stand. Later on this evening the U.S. FOMC Meeting Minutes are released, another key release that may cause further volatility.

The story this morning is one about dollar strength. The currency was initially bid higher following the release of better than expected Philly Fed Non-manufacturing index and a stronger Richmond Fed Manufacturing Index yesterday. The bids abated as Trump then raised the prospect that talks with North Korea were likely to be delayed and said on China that he wasn’t best pleased with how trade talks had gone. Since then, however, the dollar has been sought out on safe haven demand and the greenback’s strength is playing out against most major currencies this morning.

There’s a smattering of US data through this afternoon but the main risk event for the dollar, at least on paper, is the FOMC Meeting Minutes. That said we’re not sure this will tell us anything new either and the dollar will likely continue attracting bids unless the Fed suggests that the Fed might not hike in June.

EUR/USD seems to be going one way this morning. European PMIs released this morning were – in the main – a lot weaker than market forecasts, and EUR/USD looks set to break below 1.17. The stronger dollar is also playing a part, of course. EUR/GBP has dipped lower on the PMI headlines and this data could well continue to undermine the pair, depending on how the UK inflation data looks at 9:30.

AUD/USD has gone the same way as most currencies vs. the greenback over the last 12-24 hours. It failed to keep its head above .76 and with US data printing better than forecasts yesterday support at the big figure was taken away and its’ slipped under .7550 overnight. Australian construction data released overnight also did the local unit few favours, coming in under expectations.

The CAD has been one of the worst performers from the G-10 group on in the last few trading sessions, losing around 1% versus the USD after negative headlines started to hit the wires with Trump hinting that the North Korea summit might not happen on June 12 and OPEC saying they are considering an output increase due to concerns about Venezuela and Iran’s potential slower supply.

Consequently, WTI crude has lost quite a bit of ground, putting further pressure on the loonie. The currency looks set to continue taking its lead from oil prices and without any Canadian data due for release today focus both sides of the North American border will be firmly set on the FOMC Meeting Minutes.

NZD/USD has fallen from .6970 to .6890 over the last 24 hours. All commodity currencies have taken a tumble. The kiwi was a particular focus of selling though, not helped by bearish interpretations of various comments from RBNZ members. Specifically, McDermott said that that it would be prudent for the central bank to plan for another financial crisis and be prepared to use QE if necessary. In context, these seemed to be fairly general comments so it was a bit of a surprise to see such a sharp reaction in NZD/USD.