GBPUSD so close to breaking 1.3000 for first time in a year

Good morning

Well, England came close, again, but as we’ve seen a few times before, were just unable to get over the final hurdle.  Euro 2024 will be remembered as the tournament where England had the best squad but failed to make the most of it.  On the other hand, the winners, Spain, absolutely made the most of everything they had, being one of the few, or only, teams to win all seven matches, beating the likes of Germany, France and of course England along the way.  England have reached the world cup semi-finals and now reached the Euro finals in consecutive tournaments, a great feat in itself, but have no trophies to show for it.   

Fridays US PPI number actually came out stronger than expected but that didn’t stop the US Dollar sliding lower.  GBPUSD finished the week just a few pips short of 1.3000, EURUSD just above 1.0900, as the market continues to price in a September rate cut from the Fed.  Since the open today we’ve seen a slightly higher USD, GBPUSD now 1.2970 and EURUSD 1.0885, both not too far from those recent highs.  GBP has been the better performer, with GBPEUR back above 1.1900, despite comments from BoEs Dhingra that it is time for BoE to start lowering rates.

It is a pretty quiet calendar today but things do perk up through the week.  We will have UK inflation Wednesday, unemployment Thursday and retail sales Friday.  We’ll also have retail sales from the US, Canada inflation and NZ inflation tomorrow, EU inflation Wednesday and the ECB rate meeting on Thursday.  No rate change is expected but they will likely leave the door open for a September cut, particularly if the Fed lower rates as well.  The next FOMC meeting is not until the end of July, but we have a few days before their blackout period so we will hear from a few Fed officials this week, including Powell later today.

Of course one of the key events over the weekend was the assassination attempt on Donald Trump, he survived but sadly a man in the crowd was killed.  There is plenty of talk as to whether the security teams did a good enough job, there is also the usual load of conspiracy theory nonsense claiming it was staged.  Still, no doubt Trump will make use of the photo of him with his fist raised, US flag behind him, with blood running across his face. 

Other than the football;, England also lost the rugby to New Zealand once again.  England did win the test match against the West Indies by a whopping innings and 114 runs.  And congratulations to Alcarez for winning Wimbledon for the second d year running with a convincing three set to zero victory over Djokovic.  We’ve got a bit of a lull in major sporting events for a couple of weeks until the Olympics begins on 26th July.  Is it just me, or is the Olympics not the event it used to be when I was younger? 

Have a great day

-  10.00 EU industrial production

-  13.30 US NY expire state manufacturing index

-  15.30 CAD BoC business outlook survey

-  15.35 Feds Daly speaks

-  17.30 Feds Powell speaks

Softer US inflation sends USD lower, looks like Japan took advantage

Good morning

The long-awaited US inflation data was released yesterday, coming in a smidge softer than expected at 3.0% headline and 3.3% core, certainly enough for the market to be more confident about a September rate cut and to send the US dollar lower.  GBPUSD, at a fairly heady 1.2875 before the release, pushed up to 1.2950, while EURUSD moved up from 1.0845 to 1.0900.  There was a lack of follow-through, both GBPUSD and EURUSD are off the highs at 1.2910 and 1.0865, but bear in mind we started July in the mid-1.26s and low-1.07s, we do have a considerably weaker USD now than we had a week or two ago.

A key mover yesterday was Yen.  It was trading up at 161.50 just before the US inflation number, soon after it hit 157.50 before settling back at 158.60.  Now, I’ve seen nothing official and Japan haven’t confirmed but I think this is more down to intervention that just some timely unwinding of long positions.  The initial move after the release took the pair to just 160.80 or so, the next 300 pip move lower came a few minutes after.  Overnight USDJPY drifted back up to the 159.40 area, but market talk of BoJ checking FX rates took the pair back below 158.00 briefly, although it has since regained 159.00, now 159.25.

Worth noting that for a long time the major players have been saying that until Fed cuts and Japan raises rates, USDJPY will remain elevated.  The potential for a Fed rate cut in September is perhaps worrying those who have spent a long time building long USDJPY positions.  Could we be seeing the start of a great unwind or is this really just more intervention? 

It has been pointed out that Japans last intervention in early May came on the back of a dovish FOMC, this time it seems to have come on the back of softer US CPI.  I wonder if this is a new plan for Japan, to let USDJPY run until we see weak US data, and then jump on the back of the USD selling, exaggerating the move.  Sensible ploy if you ask me.  It does mean US data releases could become bigger events if the market thinks Japan could be ready to pounce.  It is difficult to find the right timing for intervention plays, Japan may be making that slightly easier.    

Really tempted to start building, very gradually, a long-term short USDJPY or GBPJPY position, the problem is the forward points are so against us.  Each month in GBPJPY, the forwards are around -100 pips, making it expensive to hold unless there is a significant decline.  We’d need a few more days like today to make that worthwhile.  

Today we have the US PPI number, another inflation figure that is less watched than CPI but is quite capable of moving the market nonetheless.  A 2.3% headline and 2.5% core are expected, both a touch higher than last month.  A surprise to the downside could give USD one more push lower before the weekend, with 1.3000 a possible target in GBPUSD, a level that we’ve not seen for almost exactly one year.  A softer reading could also trigger further intervention in Yen.  Of course, the reverse is true, and a firmer reading could give the USD shorts reason to close positions into the weekend. 

Speaking of the weekend, it another big one for sports.  There is a cricket test match going on, England v West Indies.  I remember as a kid the West Indies would be a fearful opposition.  Not so now it seems, they were all out for 121 in their first innings and were 79/6 at the close, still 171 runs behind and England’s first innings total of 371. 

England take on the might All-Blacks again in the rugby tomorrow morning, looking to get revenge for the one point loss last week.  Wales take on Australia shortly after, with South Africa v Ireland in the afternoon. 

Wimbledon tennis finals take place over the weekend, with the men’s semi-finals today.

In football, there is no third/fourth play-off for the Euro’s, can’t really blame them, no one really likes them anyway, do they?  The big event of course is Sundays final between Spain and England.  Can England overcome a slick-looking Spanish side who have beaten Germany and France to get to the final?  I certainly hope so!  Did read a worrying statistic earlier though.  Since 2001 Spanish teams have played in 22 major finals, such as Champions League, Europa League etc, against non-Spanish teams.  The Spanish sides have won all 22 finals.  We’ve got quite a job on our hands.

The weather looks bit better over the weekend than had been forecast earlier in the week. Still not much warmer than 20°c but I’ve given up hoping for anything higher, I’ll settle just for it to be dry.  A typical British summer then. 

Have a great weekend as and when it comes.  Enjoy the football.  Unless you’re Spanish of course!

Richard

-  13.30 US PPI

-  15.00 US Michigan sentiment survey

BoEs Pill gives GBP a boost, markets await US CPI

Good morning

GBP got a boost yesterday as BoEs Pill came across far more balanced than had been expected from someone who has been historically on the dovish side.  I think there had been some hope he’d be talking of success in the fight against inflation and imminent rate cuts, instead warning that although rate cuts are a matter of ‘when’ rather than ‘if’, BoE are still fearful of upside risks to inflation, particularly the persistence of some areas of inflation.  BoEs Mann followed this up later in the afternoon with some typically hawkish comments, saying services inflation was rising quickly and the UK employment market remains tight.  An August rate cut might be wishful thinking.

GBP pushed higher on Pill’s comments, GBPUSD rising from 1.2800 to 1.2860, and has found support from this mornings GDP number which came in at 0.4% against an expected 0.2%.  Not exactly steaming ahead but an improvement on the zero last time round and making a positive Q2 GDP number almost a certainty.  GBP also made and held gains against the single currency, GBPEUR up at 1.1870 as I type.  GBP has also pushed higher against other majors, GBPNZD is 2.11, GBPJPY up at almost 2.08, GBPAUD back above 1.90 and GBPCAD above 1.75.

EURUSD is 1.0835, very slightly up on this time yesterday, another reasonably dovish appearance from Powell who reminded us that inflation does not have to be at 2% in order to see a rate cut gave the USD no reason to push higher.

Key today will be the US inflation release. Anything softer than the 3.1% headline, or core 3.4%, is likely to encourage markets that Powell is on the right track with his dovish stance and send USD lower still on rate cut expectations.  Knowing these markets though, I would not be at all surprised if Powell had done his best to talk the USD lower ahead of an inflation report that surprises to the upside.  I’m sounding a bit like a conspiracy theorist.  We’ll find out at 1.30pm.

I can’t leave without mentioning the England win over Netherlands yesterday evening.  A more spirited performance for much of the game by the men in white, although we did slip back into the sideways/backwards passing routine a little too easily in the second half.  Whether it was a penalty or not isn’t really important now.  I think it was, harsh maybe but with studs up going into a challenge, no defender can complain too much.  Well, the Dutch can, but perhaps, for those of us old enough to remember, it is poetic justice for Loeman who should have been sent off back in 1993.   

So England reach their second consecutive Euro final.  Spain are going to be a tougher proposition than Italy were back in 2021 and England will have to be sharper than ever.  I’ll go into it with hope and some optimism, but we’ve all followed England enough to know we should be prepared for the worst. 

I know football fans have a terrible reputation, but sometimes they can be truly harmless, funny and entertaining.  There is a video doing the rounds of some England fans who are serenading a German riot police officer who bears an uncanny resemblance to Gareth Southgate.  You’ve probably all seen it by now, such is the speed of social media, if not I’m sure you’ll see it sometime today.  Made me smile anyway. 

Have a great day…

-  13.30 US CPI

-  23.30 NZ business PMI

-  04.00 China trade balance