EUR/USD close to one year lows as dollar bids prevail ahead of FOMC minutes

United States Dollar:

GBP/USD slumped to 1.6602 overnight, following the release of weaker than expected UK CPI inflation data yesterday morning. The index dropped from 1.9% to 1.6% y/y. A slight fall to 1.8% was expected, so this bigger than expected move has seen the pound sold off with GBP/USD dropping around 60 pips in the immediate aftermath. Falls in clothing prices provided the largest contribution to the move. The accompanying Producer Price Input and Retail Price Index also fell short of market expectations. With dovish comments from Bank of England Governor Mark Carney at last week’s Quarterly Inflation Report, this fall in inflation will provide the MPC with even more reason to wait until Q1 2015 before tightening monetary policy. We may learn more today about the intended timeframe for a rate hike, when the minutes of the latest MPC meeting are released.

U.S. CPI was also released yesterday and printed in line with market expectations at 0.1%. The core data was a little weaker than expected and compounded the sell-off in cable. Meanwhile, US Housing Starts printed stronger than market forecasts yesterday which in turn supported bids in the USD.

Euro:

EUR/USD has fallen again over the last 24 hours. It opens this morning at close to a one year low at 1.3295. The strong US housing data supported the move, whilst the relatively soft inflation data was shrugged off. Weaker European current account data also contributed, whilst the sell-off in GBP/USD dragged on the pair too. All eyes for EUR/USD traders now turn to the FOMC minutes, due tonight at 7pm. Any signal that the Fed are closer to raising interest rates will certainly be a boost for the dollar, although the likelihood of this actually happening is slim given recent comments from Fed Chair Yellen and her bemoaning of labour market conditions, or at least the slowness in its improvement. Meanwhile GBP/EUR has recovered to open this morning at 1.2505.

Aussie and Kiwi Dollars:

RBA Governor Glenn Stevens testified before the House of Representatives’ Standing Committee on Economics last night. He didn’t say anything that took the FX market too much by surprise, but nonetheless the currency fell. He said that the RBA would allow time for the effects from recent monetary policy measures to be felt. With regards to the currency, Stevens said that the central bank had not considered intervention useful and that the risk of a fall in the AUD is underappreciated. AUD/USD has fallen from .9342 to a low of .9275 overnight. NZD/USD has also fallen overnight - although to a lesser extent – as the USD has strengthened across the board. It trades at .8406 this morning.

Date Releases for the next 24 hours:

AUD: CB Leading Index m/m

EUR: No data

GBP: MPC Asset Purchase Facility Votes, MPC Official Bank Rate Votes, CBI Industrial Order Expectations

NZD: No data

USD: Crude Oil Inventories, FOMC Meeting Minutes