GBP Dips on CPI, Fed Minutes Awaited

The dollar has pulled back from fresh highs hit yesterday. The BoE inflation report hearings are in focus today.

Previous Day's Market Highlights

Euro-dollar briefly regained 1.18 as the dollar initially softened, but it later reversed course to return to the 1.17-1.18 band. Sterling-dollar tested highs in the upper half of the 1.34-1.35 range before heading lower towards 1.34.
 
While the calendar was largely quiet, the pound saw some morning gains around some relatively hawkish comments during MPC Member Vlieghe’s re-appointment hearing, while the Inflation Report Hearing included a discussion of Q1 data and whether GDP could see a revision higher.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1385 1.1520 1.1302 1.89%
GBP/USD 1.3396 1.3999 1.3385 4.39%
EUR/USD 1.1765 1.2238 1.1716 4.27%
GBP/AUD 1.7781 1.8476 1.7671 4.36%
GBP/NZD 1.9423 1.9755 1.9247 2.57%
GBP/CAD 1.7235 1.7985 1.7122 4.80%

Today's Market Highlights

Softening inflation was one of the factors that reduced market expectations of a May BoE rate hike and continues to pose a risk to rate hike expectations—and thus the pound—going forward. Today’s lower-than-expected CPI print of 2.4% has seen some additional sterling weakness, pushing sterling-dollar to yet another fresh 2018 low below 1.34.
 
In the afternoon, preliminary Markit Services and Manufacturing PMIs (14:45) and New Home Sales (15:00) are in focus for the dollar. Positive figures could add to recent strength. Attention will largely be on this evening’s Fed minutes (19:00) as investors look for signals that the Fed is on track to hike rates next month as is widely expected and any signals that a fourth hike could be in play this year. Minutes that do little to shift market expectations may have a muted impact on the dollar, so investors will keep an eye out for any surprises.
 
Overnight, trade data could provide some support for the kiwi dollar.

Today's Economic Calendar

Time Currency Release Consensus Previous
09:30 GBP CPI YoY (Apr) 2.5% 2.5%
09:30 GBP Core CPI YoY (Apr) 2.2% 2.3%
14:45 USD Markit Services PMI (May) 54.9 54.6
14:45 USD Markit Manufacturing PMI (May) 56.5 56.5
15:00 USD New Home Sales MoM (Apr) 0.679M 0.694M
15:30 USD EIA Crude Oil Inventories (18 May) -1.567M -1.404M
19:00 USD Fed Minutes
19:15 USD Fed Member Kashkari Speaks
23:45 NZD Trade Balance MoM (Apr) $200M $-86M

Caxton