US data and flight to safety boost dollar across the board

Today’s macro highlights:

  • GBP - Bank of England Credit Conditions (Q2)
  • EUR - Eurozone Industrial Production (May)
  • USD - Consumer Price Inflation (June)

US data and flight to safety boost dollar across the board

In what was a rather quiet day in terms of the economic calendar yesterday, the US dollar came out on top. Economic data continued to point towards the need for the Federal Reserve to keep hiking interest rates after Producer Price Inflation came in ahead of expectations. On top of this, more sabre rattling from Donald Trump - demanding that NATO members spend a far greater share of GDP on defence and the lining up of another huge swathe of tariffs against China - appeared to be playing to the safe haven mindset, propelling the DXY dollar index to one week highs.

At 9.30am BST we have the Bank of England’s credit conditions survey for Q2. Assuming demand for loans remains upbeat, this will add further weight to calls for an interest rate hike in August. Markets are currently pricing in an 80% chance of us seeing a 0.25% uplift in rates at the next meeting three weeks from today. Anything that adds to these demands may help bolster the pound at least in the short term.

Eurozone industrial production readings are expected at 10am BST and there’s an expectation that some solid growth will be seen. Again, this should be positive for the Euro as it will increase the prospect of the ECB’s bond buying programme being wound down before the end of the year, in turn paving the way for that first rate hike from Frankfurt around Q3 of 2019.

Across the Atlantic and Consumer Price Inflation readings for June will be published at 1.30pm BST. There have been some question marks building over the US economy of late, but inflation looks set to continue to grow, largely driven by the import tariffs applied by the US government. Yesterday’s jump in PPI - that’s the price paid by manufacturers - was seen as coming being influenced by this policy change and it seems likely that today’s consumer equivalent figure will be comfortably above the 2% target, further encouraging the Federal Reserve to maintain its target of two more rate hikes before the year is out.

It’s worth noting that yesterday’s losses for the pair were greater than those seen in the wake of Monday’s political turmoil. Downside pressure is also being maintained despite the likelihood of an August rate hike, suggesting again that against the current political and economic rhetoric we’re seeing out of the US, gains are going to be hard to sustain.

Similarly, notable losses were seen by the pair yesterday - and that’s even with the Italian deputy Prime Minister stating publicly how the country isn’t working on a plan to exit the Euro, but instead wants to see reform at the ECB. Again, the odds seem stacked against the pair being able to push above highs from earlier this week.

A marked increase in volatility for the pair when compared to Tuesday’s trade, but there was little change recorded for the day as a whole. There’s a downside bias emerging here, although delivery of that BoE rate hike in three weeks time could be sufficient to break the trend - at least in the short term.

Did you know…
A few weeks back, we mentioned how the GBP/USD pair was often referred to as “cable”, but trader jargon for currency pairs isn’t limited to across the Atlantic. The Sterling-Japanese Yen rate is termed “guppy”, derived from the GBP/JPY term. Move across to the Eurozone and you’ve then got the “yuppy” to denote EUR/JPY, but what about the Russian Rouble? Well, the US dollar cross - USD/RUB - can be heard badged as a “Barney”, as in Barney Rubble of the Flintstones cartoon. Imagination was however clearly running thin on the ground when someone decided that the best nickname for EUR/RUB would be Barney’s wife, “Betty”. Not only does making this link stretch the imagination somewhat, but it also risks significant confusion - Betty (Grable) is used by some London traders as cockney rhyming slang for cable.