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The USD and Inflation in Focus as the Markets Respond to the Summit

By:
Bob Mason
Updated: Jun 12, 2018, 10:21 UTC

Following some weak stats out of the Eurozone, the EUR maintained its position through the morning, on expectations of a hawkish ECB, with today's inflation numbers likely to hit the Dollar should they impress.

Inflation data in focus

Earlier in the Day:

Key stats through the Asian session this morning were on the heavier side, with May’s electronic card retail sales numbers out of New Zealand, the 2nd quarter’s BSI Manufacturing Conditions Index number out of Japan, together with the tertiary industry activity index number, and April home loans and May’s business confidence figures out of Australia released through the Asian session.

For the Kiwi Dollar, electronic card sales rose by 0.4% in May to partially reverse a 2.2% slide in April.

The increase in spending was attributed to a rise in consumer spending on household essentials, such as groceries, and fuel, though spending rose in just 3 of the 6 retail industries.

The Kiwi Dollar moved from $0.70204 to $0.70191 upon release of the figures before rising to $0.7035 at the time of writing, up 0.13% for the morning.

For the Japanese Yen, it was a mixed morning on the data front, with the BSI Large Manufacturing Conditions Index falling -3.2, which was worse than a forecasted rise to 3.2 from the 1st quarter’s 2.9.

The Japanese Yen moved from ¥110.391 to ¥110.422 upon release of the figures.

In contrast, the tertiary activity index rose by 1% in April, reversing March’s 0.3% decline.

Industries contributing to the rise included: Information and Communications; Finance and Insurance; Retail Trade; Living and Amusement-related Services; Wholesale Trade; Electricity, gas, heat supply and water; Goods Rental and Leasing and Medical, Healthcare and Welfare.

Industries pinning back the index were limited to Transport and Postal Activities; Business-related Services and Real Estate.

The Japanese Yen moved from ¥110.329 to ¥110.414 upon release of the figure, before recovering to ¥110.2 against the U.S Dollar, down 0.16% for the morning.

For the Aussie Dollar, home loans fell by a further 1.4% in April, following a 2.3% fall in March, which was marginally better than a forecasted 1.7% fall, while business confidence slipped in May, the NAB Business Confidence Index falling to +6 from April’s +11, which was worse than a forecasted fall to +9.

Alongside the fall in the Business Confidence Index, there was also a 6 point fall in the business conditions index, the index pulling back from April’s historical high.

A positive from the latest survey was some improvement in retail conditions in May, after sliding into the red in April. Looking at the sub-indexes, subdued outlook towards both wage and inflation growth will continue to be an issue for the RBA, who maintained their dovish stance in the latest RBA Statement.

The Aussie Dollar moved from $0.75971 to $0.7604 upon release of the figures, before rising to $0.7617 at the time if writing, up 0.11% for the morning.

In the equity markets, it was risk on as the markets received more details from the North Korea – U.S Summit, the Nikkei and ASX200 closing the day with 0.33% and 0.15% gains respectively and the CSI300 and Hang Seng closing with 1.22% and 0.13% gains for the day.

The Day Ahead:

For the EUR, key stats for the morning included French nonfarm payroll numbers and the ZEW economic sentiment figures out of Germany and the Eurozone for June.

Nonfarm payrolls rose by 0.2% in the 1st quarter, falling short of a forecasted 0.3% rise and easing from the previous quarter’s upwardly revised 0.4% increase.

The EUR moved from $1.1797 to $1.17952 upon release of the figures.

The ZEW economic sentiment figures were also disappointing, with Germany’s ZEW economic sentiment index falling from -8.2 to -16.1 in June, which was worse than a forecasted fall to -13, with the Eurozone’s economic sentiment index sliding from 2.4 to -12.6.

The figures provided further evidence of the shift in economic conditions ahead of Thursday’s ECB monetary policy and press conference

The EUR moved from $1.17942 to $1.17949 upon release of the figures. At the time of writing, the EUR was up 0.10% to $1.1796, the weak numbers doing little to shift expectations of a hawkish ECB on Thursday.

For the Pound, economic data released this morning included April’s wage growth and unemployment numbers and May’s claimant count figures.

While wage growth + bonuses eased from 2.6% to 2.5%, which was in line with forecasts, claimant counts fell by 7,700 in May, which was better than a forecasted 11,300 increase, providing support to the Pound, with employment rising by 146,000, coming in ahead of a forecasted 124,000 increase in the 3-months to April.

The Pound moved from $1.33975 to $1.34003 upon release of the figures, before moving to $1.3406 at the time of writing, the Pound up 0.2% for the morning, supported by the strong employment numbers.

Across the Pond, it’s May’s inflation numbers scheduled for release out of the U.S this afternoon, with forecasts pointing to a pickup in the annual rate of inflation that should provide some support for the U.S Dollar, though positive sentiment towards the North Korea – U.S Summit has eased appetite for the safe havens, weighing on the Dollar through the early part of the day. With the FED’s monetary policy decision tomorrow being accompanied by the release of the economic projections, any material uptick in the annual rate of inflation could see an increased bias towards a more aggressive rate path for the remainder of the year.

At the time of writing, the Dollar Spot Index was down 0.11% to 93.504, with today’s stats and noise from the Oval Office the key drivers through the day.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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