Markets prepare for the FOMC and ECB meetings
What’s been happening?
Pound Sterling – UK Markets
The Pound declined during early trading this morning following disappointing consumer price index data released by the Office for National Statistics. CPI reached its lowest level since March 2017 during May, coming in at 2.4%, despite a sharp rise in oil and energy prices during the 2018 year to date. Core CPI, which is seen as a more accurate representation of domestically generated inflation pressure held steady at 2.1% for the recent months. Both numbers still exceed the 2% target of the Bank of England, although they also add weight to claims that the 2018 fall in inflation is here to stay and is not just a passing phenomenon.
The Pound was quoted 0.36% lower at 1.3324 against the Dollar following the release, after extending an earlier 0.09% loss, while the Pound to Euro fell deeper into the red to be quoted 0.31% lower at 1.1346.
US Dollar – US Markets
US consumer prices rose marginally in May amid a slowdown in surges in the cost of gasoline and the underlying trend continued to suggest modest inflation in the economy. The CPI increased 0.2% in May versus the consensus forecasts of 0.1%, with the annual increase at 2.8% from 2.5% previously, recording the highest rate since February 2012. This lifted the year on year increase in core CPI to 2.2% from 2.1% in April and the largest since February 2017. The May US National Federation of Independent Business (NFIB) small business optimism index rose to 107.8, 3 points above the previous reading and was the second highest reading on record, following the level of 108 reached in July 1983. The Dollar gained against a basket of currencies immediately after the data before falling to trade slightly lower.
The latest data maintained expectation of a gradual increase in inflation and added to signs that more than one rate hike for 2018 will be announced at the FOMC meeting later today.
Euro – European Markets
The June German ZEW headline numbers, which are recorded by asking 300 institutional investors and analysts to rate the relative 6-month economic outlook for Germany, showed the economic sentiment index slumping to a new low of -16.1 versus -14.0 expectation and -8.2 recorded previously. The sub-index current conditions figure also dropped sharply to 80.6, missing the 85.0 expectation by a big margin. New data is adding to the unease surrounding the Eurozone growth outlook and triggering fresh concerns surrounding European Central Bank normalisation plans.
The Euro has very little room for movement at the moment as global markets prepare for the FOMC meeting later today and ECB meeting tomorrow. Euro’s previous rally against the US Dollar may however be over according to latest technical analysis and markets will remain cautious ahead of the ECB rate decision.
What’s coming up?
UK: The UK, along with the rest of the EU and US is experiencing a data heavy week. Tomorrow we will see the release of year on year and month on month retails sales figures. Markets will also continue to follow the developments at the House of Commons as Brexit proposals continue to be debated.
US: The highly anticipated Federal Reserve policy meeting where a decision on the interest rate will be announced will take place later this evening. FOMC will also release their economic projections report. This report includes the FOMC's projection for inflation and economic growth over the next 2 years and, more importantly, a breakdown of individual FOMC member's interest rate forecasts. US retail sales figures for the month of May will be out tomorrow.
EU: Euro markets will be looking at the European Central Bank meeting taking place tomorrow. ECB will announce their interest rate as well as the deposit rate decisions during the meeting.