All eyes on ECB after hawkish Fed

The Fed raised Interest rates by 25bps yesterday, taking it to the 1.75-2% range. This was followed by relatively hawkish comments, signalling 2 more hikes this year and 3 more in 2019. Elsewhere, we had UK’s inflation data come out as expected at 2.4%.

Previous Day's Market Highlights

Despite some positivity from the pound on Tuesday, yesterday morning saw much of those gains diminish. The morning’s UK Consumer Price Index was released at 2.4%, which was below the forecasted 2.5%. This may only seem marginal, but the CPI data is always crucial in deciding movement of GBP and the UK economy as a whole. We lost roughly 0.3% on both the USD and EUR early in the morning.

Throughout the day however, we saw the pound rebound and make up all earlier losses on both of the pairings. The rebound on the EUR was primarily due to poor industrial production data in the Eurozone released later yesterday morning. Gains for GBP against USD continued throughout the day and falling late into the afternoon causing us to close above the open despite earlier losses. Although PPI data from the US was relatively strong, the US protoderm report came out with a much poorer number than expected which often has a knock on effect on the USD and some major commodity currencies.
 
The main event for yesterday was, of course, the US Fed interest rate decision. The interest rate for the US was previously at 1.75% and, as of last night, the FED has now raised this by 25 basis points to 2%. Although this is seen as positive, there was a very slight spike in the USD against GBP, EUR and other currencies for a very short period which was short lived in every case. The interest rate decision was already priced in the market, as well as the language used to plan on raising rates further throughout 2018. Hence, we did not see an awful lot of volatility off the back of the decision.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1338 1.1478 1.1302 1.53%
GBP/USD 1.3394 1.3619 1.3204 3.05%
EUR/USD 1.1813 1.1996 1.1510 4.05%
GBP/AUD 1.7730 1.8241 1.7518 3.96%
GBP/NZD 1.9044 1.9702 1.8928 3.93%
GBP/CAD 1.7380 1.7567 1.7055 2.91%

Today's Market Highlights

This morning’s session has already begun in Europe with German and French month-on-month CPI data coming out as forecasted. At 9.30am the UK’s Retail Sales data is released. It is expected however that traders will not move drastically on this figure as they await the ECB meet this afternoon.

The ECB press conference is set for 1.30pm, where expectations are for clarity on when we can expect the central bank’s quantitative easing programme to end. Any allusions made to this coupled with the slower economic growth seen within the Eurozone this year, and we should expect to see some volatility in the markets this afternoon.

Today's Economic Calendar

Time Currency Release Consensus Previous
9.30am GBP Retail Price Index (MoM) (May) 0.4% 0.5%
9.30am GBP Retail Price Index (YoY) (May) 3.4% 3.4%
9.30am GBP Consumer Price Index (MoM) (May) 2.5% 2.4%
09:30am GBP Consumer Price Index (YoY) (May) 0.4% 0.4%
10:00am EUR Industrial Production s.a. (MoM) (Apr) 2.2% 2.1%
06:00pm USD FOMC Economic Projections
06:00pm USD Fed's Powell Speech
06:00pm USD Fed's Monetary Policy Statement
06:00pm USD Fed Interest Rate Decision 2.0% 1.75%

Caxton