Australian CPI limits RBA policy responses

• US CPI hits estimates but leaves Fed unpressured

• Europeans fail to agree on Russian MH17 punishment

• GBP wary of rate hike expectations before minutess

• Australian CPI limits RBA policy responses

Yesterday was once again a session that saw both political and economic measures fail to hit the mark. This continued the recent market identity of higher equities on very low volume and a docile currency market.

CPI and existing home sales news from the US were the main data points of yesterday's session with the former disappointing those who had hoped that the latest round of inflation data would heap pressure on the Federal Reserve to amend its language on the possibility of higher prices to hint at interest rate hikes sooner. While the headline number hit a consensus rise of 2.1% in the past year, core prices that remove volatile food and energy components slipped to 1.9% on the same time frame. This means the Federal Reserve can continue to communicate a message of uncertain and weak price action to excuse its current policy.

Existing home sales provided the USD with further positive impetus as sales of existing homes in the US rose to their highest level since October of last year.

Dollar gained the most against the euro yesterday as traders' patience around a lower single currency started to pay off. Some are keen to paint this as a response to European foreign ministers possibly considering new sanctions on Russia at their meeting in Brussels yesterday.

The meeting yielded relatively little except a commitment to increase measures against Russia in the event of another incident. France will continue to sell its warships and Germany and Italy won't be forced to find new energy suppliers for now. EURUSD fell to the lowest level in over 5 months yesterday with generalised euro weakness getting market participants excited about what may be to come.

Sterling's main opponent today will be the expectations game. Today's Bank of England minutes will give us fresh insight into the thoughts and concerns of policy makers but a unanimous voting record in favour of current policy may act as a GBP negative, such is the push within markets for the first interest rate increase to be sometime this year.

We know that dissent against the current policy of low interest rates will come eventually and these indeed may be the last set of minutes in which we see unanimity from the Monetary Policy Committee. Once again we expect a trade-off in the minutes between the positivity shown in the jobs markets to be counterbalanced by the poor dynamics in wages and below target inflation.

Bank of England Governor Mark Carney is due to speak in Glasgow this afternoon as the Commonwealth Games begins.

Australia will be taking part at the Commonwealth Games in the coming week and it is their currency that is leading the way this morning. Core CPI in Australia rose 0.8% in Q2 against an expectation of a 0.6% rise. This has pushed the AUD to the highest level in 2 weeks against the USD as investors further discount the possibility that the Reserve Bank of Australia will be able to cut rates in the near-term to deal with a flying currency or a stagnant economy.

Elsewhere, the focus will slip back on to the Eurozone later today as the latest round of consumer confidence is due. June’s measure unexpectedly slipped following five consecutive gains as respondents worried about jobs and wages. The latest release is due at 3pm today.

Have a great day.