US dollar remains weak but no June rate cut from Fed expected

Good morning

Welcome back, I hope you had a terrific long weekend.  Mine involved a bit of gardening, a bit golf, a bit of watching sport, a fair bit of family stuff and of course a couple of glasses of wine.  A perfect bank holiday weekend.  I also managed to repair a cordless drill that I’d had trouble with.  A quick look on YouTube suggested I should take it apart, jiggle it around and put it back together.  I did, and it worked.  I felt like something of a mechanic even though in reality it was more like an adult lego set.  Still, it would have gone in the bin had I not given it a go.  Quite an accomplishment in my world.

I do have to congratulate Southampton on their rise to the Premier League after beating Mark’s Leeds over the weekend.  After Leeds semi-final performance they looked like almost certain winners but they were unable to produce the same kind of form this time and will have to wait another year for their return to the top flight.  Still, Southampton are a whole lot closer to Mark now so could be time to adopt them as a second club.  Probably too late to get a season ticket though.

Congratulations also to Man Utd who surprised may by beating local rivals Man City in the FA cup final.  I did watch it, I thought it was a pretty entertaining match and I never mind seeing a team other than Man City win something. 

Anyway, back to work.  I always find it a bit of a struggle to wrote something after even the shortest break, but I’ll see what I can come up with.

The US dollar weakened a bit further against GBP and EUR yesterday.  GBPUSD had been down to 1.2675 on Friday morning after the retail sales numbers, it is now up at 1.2770, just 10 pips off the highs.  EURUSD also rose, from a Friday low around 1.0805 to hit 1.0880, pretty much where it is now.  This leaves GBPEUR at 1.1745, a touch off yesterdays highs of 1.1765.  The yen remains weak.  USDJPY has held well in the mid-high 156’s, which means GBPJPY has broken above 200 for the first time since 2008, during the global financial crisis, having been above 151.00 in July 2007.  Japan FinMin Suzuki has said again he is concerned about the negative aspects of a weak yen, but drew the line at confirming whether they did intervene in the currency markets in late April/early May.

Some hope that UK inflation will show more signs of softening, with BRC shop prices slowing to 0.6% in the first week of May, the lowest level since late 2021.  The energy price cap will come lower in July and BoEs Broadbent said he felt inflation was ‘getting there’, adding that monetary easing would be needed in the coming months.  Of course, the UK election is dominating the headlines, we’ve already heard of pledges and promises by various politicians. 

It’s a rather odd time for Sunak to announce his thoughts on military service, perhaps this is the start of the head line that I think the Tories will need to take if they are to have any chance in this election.  Still, for many people, politics has become somewhat farcical and so far removed from reality.  The fact the Liz Truss is allowed to take £115,000 annual ex-PM ‘salary’ after a disastrous 45 days at the helm really goes a long way to prove how absurd the whole set-up has become.

China have warned US about getting involved in maritime disputes between China and its neighbours.  The problem is, left untouched, the Chinese will simply take over any land or islands they like the look of, and there is nothing that anyone can do about it.  Meanwhile, some are likening the build-up of China forces around Taiwan to those of the Russian forces on the Ukrainian borders back in late 2021/early 2022. 

We don’t have the busiest economic calendar today but it does pick up through the week, with German inflation tomorrow, US GDP Thursday and then EU inflation and US core PCE on Friday.  I’m out and about a bit this week, including my annual golf weekend that begins Friday.  Will it stay dry?  Unlikely, I don’t think I’ll need to pack the suntan lotion either. 

-  14.00 US house price index

-  14.15 ECBs Knot speaks

-  14.55 Feds Kashkari speaks

-  15.00 US consumer confidence

-  18.00 Feds Daly speaks

-  18.05 Feds Cook speaks

-  02.30 AUS CPI

GBP shrugs off weak retail sales numbers, now enjoy the long weekend

Good morning

There wasn’t a huge amount going on in the currency markets yesterday, indeed apart from a few moments we’ve felt like we’re in something of a holiday mode.  USD did find a bid yesterday on better than expected PMI numbers.  They followed mildly disappointing PMI readings from the EU and UK.  The US data was strong enough to lower the chances once again of a US rate cut.  There are still just over 25bps of cuts priced in for 2024, with December being the favourite for now, although Fed officials continue to warn of rates being higher for longer and I’m not sure we’ll see a cut unless we see a real turn lower in inflation or worryingly weaker economic data out of the US.

There is a growing difference of opinion from various central banks on their view of the next rate move.  RBNZ and RBA have sounded more hawkish, Fed seem to be happy on hold, ECB, BoC and BoE have all talked of possible rate cuts.  It will make for an interesting few months, that’s for sure.

GBP had a brief and shallow dip this morning on the release of some pretty disappointing UK retail sales numbers, it took just a couple of minutes to return the pre-release levels and has since moved slightly higher, if still below the highs seen earlier in the week.  GBPUSD is now 1.2700 having been down to 1.2675 on retail sales data, and we have been as high as 1.2760 this week.  GBPEUR is now 1.1735, ten pips or so above the post-retail sales lows but below the 1.1765 area which capped the upside yesterday morning.  I’m watching the key 1.1770 area with interest.

We have also seen GBP push higher, or at least hold gains, against other currencies.  GBPAUD is now up to 1.9235, GBPJPY holding around 199.35, and I see GBPZAR has pushed up towards the mid-23’s having traded below 23 earlier this week.  There is an election in South Africa next week, some thinking the recent ZAR strength comes from the idea that the ruling ANC will lose some votes but still hold a big enough majority to not have to rely on coalition partners.  I’ve not see recent polls but perhaps the 2% decline in ZAR over the last couple of days suggests growing concern ANC could lose their majority.

We will have no speeches or public statements by BoE officials until after the UK election on 4th July, nothing sinister, it is just the normal policy.  What some think is more sinister is why Sunak has chosen to call an early election, with some even suggesting that by July/August it will have been announced we are at war with Russia and Sunak does not want to be in power when that happens.  Conspiracy theories again, this one fuelled by the MP Andrew Bridgen who recently said in an interview that ‘we are actually at war with Russia now, they just haven’t told you.’ 

Is he right?   There have been worrying noises from Moscow, they recently released draft details of how they are looking to change some international borders, and it is no secret that EU/NATO forces are building in Eastern Europe.  A lot of this warmongering seems to stem from  Putin’s warnings that while he wants no war with NATO, if Ukraine start using Western weapons based outside Ukraine, such as jet fighters, they will be legitimate targets wherever they are based, even if they are on NATO territory.  With war raging in Ukraine, the West will have to choose between letting Russia take Ukraine, waging war with Russia to get them out of Ukraine, or to accept that there is unlikely to be peace in Ukraine.  Not a great set of choices really.   Meanwhile China continues its military drills around Taiwan, just to add to the uncertainty in the world right now.

Enough of the doom and gloom.  There is a long weekend coming up, the sun is shining, and there is plenty to look forward to.  The FA cup final tomorrow, the Championship play off final, which is likely to determine Mark’s mood for the next few weeks, a bit of golf I hope and we might even see temperatures up to 20°c again.  Still far too many rain drops on the BBC weather forecast for my liking mind you.

With the bank holiday Monday in the UK and in the US, there shouldn’t be much going on at all, we’ll be keeping one eye on the markets for you just in case, hopefully with a cold beer in hand while stoking the barbeque with the other.  Chance would be a fine thing!

Have a great weekend.

-  10.15 ECBs Nagel speaks

-  13.30 US durable goods

-  13.30 CAD retail sales

-  14.35 Feds Waller speaks

-  15.00 US Michigan sentiment survey

GBP holds post-CPI gains, Sunak announces general election on 4th July

Good morning

Well it was another pretty quiet day yesterday after the initial flurry over the UK inflation numbers.  GBPUSD held above 1.2700 for most of the day and finished around 1.2735, GBPEUR got as high as 1.1760 but failed to break higher, just as it has done on every attempt since Sept 2022.  GBPJPY still in the 199’s and GBPAUD worked its way up to near 1.9200 through the course of the afternoon.

Goldmans have said they now see a BoE rate cut in August, that has been pushed back a couple of months after the UK inflation report, although this is still earlier than many expect.  FOMC minutes came across mildly more hawkish than Powell’s press conference after the last Fed meeting but given we have had US inflation numbers and a healthy supply of Fed officials speaking since the meeting they are slightly out of date.  Goldmans don’t see any rate cut from the Fed in 2024.  ECB officials continue to point to an ECB cut in June.

It’s a busier calendar today with EU, UK and US PMIs which do have the potential to move the markets.  We also have the Turkish rate announcement at midday, to be honest we don’t do much Turkish Lira at the moment but with interest rates at 50% and inflation near 70% I’m just intrigued more than anything.  They are expected to keep rates on hold today.

UK PM Rishi Sunak has called a general election for 4th July.  That doesn’t give the Tories long to turn around what is expected to be a bit of a landslide victory for Labour.  According to Betfair, the Tories are expected to lose over 200 seats after something of a disastrous few years.  Labour obviously favourites but I think it will be interesting to see how the marginals and independents fare.  The turmoil in immigration and the soft stance against a lot of the recent protests could play into the hands of the Reform Party.  I do have to be a bit careful what I say here as we all know how easy it is to cause unintended offence, but i do wonder whether the Tories, if they play their cards right, could do a bit better than expected by playing something of a harder line.   Immigration and the Rwanda plan is likely to be at the heart of this election. 

The announcement of the lection has had little impact on GBP, GBPUSD now 1.2730, GBPEUR up at 1.1760, knocking on the door of those key upside levels, although option volatility levels are a touch higher.

Across the pond, Trump is currently favourite to retake his post as President in November according to the bookies, indeed I read somewhere that his odds are the shortest ever in the battle for Presidency.  I’ll say it again, some 350 million people and Trump and Biden are the best candidates they can find? 

China have been conducting their largest military drills for over a year around Taiwan, this time pretty much encircling it, proof if needed that they would be able to cut off Taiwan from the rest of the world as and when it chose to.  Taiwan have reacted with a bit of a shrug of the shoulders and seem happy to maintain the status quo, but China’s intentions are pretty clear. They do not want Taiwan to believe independence is ever possible.  Elsewhere, UK are reporting that China have sent weapons to Russia for use in Ukraine, which would mark something of a change.  The US are so far saying they have not yet seen a transfer of weapons.  In more comforting news, China, Japan and South Korea are due to hold talks for the first time since 2019.

Congratulations to Atalanta for winning the Europa League final last night, in doing so ending bringing an end to Bayer Leverkusen’s unbeaten run this season.  Nothing particularly exciting sport-wise over the next couple of days but we do have the FA cup final on Saturday and the all-important (for Mark) Championship play-off final to decide whether Leeds or Southampton will be playing in the Premier League next year.  Still, we’re not there yet, still have to get through the rest of the week before we can consider enjoying the long weekend.

Have a great day, its stopped raining here for now.  Yesterday was just constant rain and drizzle but not the deluge that some saw.  Its still cold but should warm up a little by the weekend according to the BBC.  Mind you, I hope they are wrong.  They are now forecasting rain for my golf trip next weekend. 

-  09.00 EU services, manufacturing PMI

-  09.30 UK S&P services, manufacturing PMI

-  12.00 CBRT rate announcement

-  13.30 US initial jobless claims

-  14.45 US S&P services, manufacturing PMI

-  15.00 US new home sales

-  15.00 EU consumer confidence

-  20.00 Feds Bostic speaks

-  23.25 RBNZs Orr speaks

-  23.45 NZ trade balance

-  00.01 UK GfK consumer confidence

-  00.30 Japan CPI

-  07.00 UK retail sales