Pound Slips on less hawkish BOE, Dollar steadies

AUD, NZD Edge Up; US Stocks Hit Record Highs

Summary:  The Dollar Index (USD/DXY), a popular gauge of the Greenback’s value against a basket of 6 major currencies steadied to 91.77 (91.85 yesterday). Last Friday USD/DXY hit a two-month high at 92.405. In otherwise featureless and dull trade, Sterling was the busiest currency, slipping to 1.3925 (1.3957). The Bank of England maintained its Bank Rate at 0.1% and showed it was in no rush to raise interest rates. This disappointed GBP hawks who expected the BOE to match the Fed in its tone. Against the Yen, the US Dollar eased to 110.85 from 111.00 yesterday. Risk leading currency, the Australian Dollar edged 0.2% higher to 0.7587 (0.7574 yesterday). The Euro was little changed for the 3^rd day running, settling at 1.1933 (1.1925). Asian and Emerging Market currencies ended mixed against the US Dollar. The USD/SGD (US Dollar vs Singapore Dollar) pair eased 0.27% to 1.3425 (1.3455) while the USD/THB (US Dollar vs Thai Baht) climbed to 31.92 from 31.82 yesterday. Against China’s Offshore Yuan, the Greenback (USD/CNH) dipped to 6.4695 from 6.4775. Wall Street stocks hit record highs with the DOW closing at 34,260 (33,930) while the S&P 500 was last at 4,271 (4,245). The US 10-year bond yield steadied to 1.49% (1.49% yesterday). Germany’s 10-year Bund yield dipped to -0.19% from -0.18%. The UK-10-year rate settled at 0.74% from 0.78%. Japan’s 10-year JGB yield was unchanged at 0.04%.
Data released yesterday saw Germany’s IFO Business Climate Index (June) climb to 101.8 from 99.2, beating estimates at 100.6. The Bank of England maintained its QE (bond purchases) at GBP 895 billion. Claims for Unemployment Benefits in the US rose to 411,000 from an upwardly revised 418,000 (412,000), and higher than expectations of 380,000. US May Headline Durable Goods Orders missed estimates at 2.3% (vs 2.8%). Core Durable Goods Orders for May were lower than expectations at 0.3% (against 0.8%). The US Goods Trade Deficit rose to -USD 88.1 billion in May from April’s-USD 85.7 billion.

• GBP/USD – Sterling slipped from just under 1.4000 in choppy trade to 1.39239 overnight lows, settling at 1.3957 in late New York. The Bank of England showed that it was in no rush to raise interest rates, disappointing GBP hawks who were anticipating more urgency.
• AUD/USD – The Australian Dollar rebounded off its overnight low at 0.75377 in subdued trade to hit a high at 0.75996 before easing to 0.7575 in late New York. Risk appetite remained upbeat which supported the Battler.
• USD/JPY – traded to an overnight peak at 111.140 before easing to settle at 110.85. Japanese Prime Minister Yoshihide Suga pledged to speed up vaccinations in the country one month ahead of the opening of the Tokyo Olympics. The 111.00 barrier remains formidable, for now.
• EUR/USD – The shared currency closed little changed at 1.1933 from 1.1925 yesterday in dull trade. Overall range for the EUR/USD pair was between 1.19175 and 1.19562. A robust German IFO Business Climate Index (see above) supported the Euro.

On the Lookout: Markets get a better picture of inflation in the US with the release of the US May Core PCE Price Index (Sydney 10.30 pm, 25 June). This number is rumoured to be the Federal Reserve’s favourite inflation measure, hence the significance. The US CPI report was released earlier this month. The FOMC meeting followed shortly after (16 June). Median forecasts are for a dip to 0.6% from the previous 0.7% (m/m). Year-on-Year forecasts are for a rise to 3.4% from 3.1% in April (ACY Securities Finlogix). Other data released today are New Zealand’s May Trade Balance (April’s was +NZD 388 million). NZ Exports were last at +NZD 5.37 billion in April while Imports were at +NZD 4.98 billion. The UK releases its GFK Consumer Confidence Index for June (9.01 am Sydney, 25 June). Forecasts are for -7 from the previous -9.
Japan follows with its Tokyo Core CPI for June (f/c at -0.1% from -0.2%). Germany releases its GFK Consumer Confidence Index for July (f/c -4.0 from -7.0). Italy’s Consumer Confidence in June is forecast to rise to 112.00 from 110.6. Finally, the US releases its May Personal Income (f/c -2.5% from -13.1% m/m), Personal Spending (f/c 0.4% from 0.5% m/m), and University of Michigan June Consumer Sentiment (f/c 86.5 from 82.9).

Trading Perspective: Traders will be content to trade within recent ranges into the release of tonight’s US data. The focus will be on the US Core PCE number, which if climbs more than forecast, will see higher inflation fears ramp up. If the PCE number is spot on with median expectations, the Greenback will drift higher against its counterparts. While Federal Reserve officials have differed in their views on the transitory nature of US inflation, the PCE inflation report will be a key test. US bond yields have stabilised but any surprises in this number will see them move. Worth keeping an eye out for.

(Source: Finlogix.com)

• AUD/USD – closed on the high side of its recent range at 0.7587 since last Friday with the 0.7600 immediate resistance a strong barrier. The Aussie Dollar will take its cue from the US Dollar and US data releases tonight. Immediate support for AUD/USD can be found at 0.7570 (overnight low 0.75685), 0.7540 and 0.7500. Look for consolidation with a likely range of 0.7510-0.7610. Preference is to sell into AUD strength. The rise in Covid cases in New South Wales, while comparatively small to other countries, does not bode well for the Aussie. Singapore was the latest country to tighten its border with Australia.
• GBP/USD – Sterling underperformed after the Bank of England disappointed the hawks and showed that it was in no rush to raise interest rates. All members of the MPC (Monetary Policy Committee) voted to keep interest rates unchanged with one member – Chief Economist Andy Haldane – voting to reduce the scale of QE by GBP 50 billion. Haldane who is leaving the BOE, is known as a perennial inflation hawk. GBP/USD has immediate support at 1.3890 (overnight low 1.38891) followed by 1.3850 and 1.3800. Immediate resistance can be found at 1.3970 and 1.4010. Look to trade a likely range of 1.3880-1.3980 today.
• EUR/USD – The Euro traded in a relatively tight range between 1.19175 and 1.19562 which is less than 40 pips. Germany releases its GFK Consumer Confidence Index later today (4 pm Sydney) which is expected to improve to -4.0 from a previous -7.0. The shared currency has immediate resistance at 1.1960, 1.2010, and 1.2060. Immediate support can be found at 1.1910, 1.1870 and 1.1840. Expect the EUR/USD to trade within a likely 1.1880-1.1960. Preference is to sell into strength, ideally around the 1.2000 level.
• USD/SGD – The Greenback slipped against the “Sing” (Singapore Dollar) to close at 1.3425 opening at 1.3460 yesterday. USD/SGD has immediate support at 1.3395 followed by 1.3365 and 1.3335. Immediate resistance can be found at 1.3465, 13495 and 1.3535. The “Sing” will take its lead from the release of US data tonight and the Greenback. Looking for consolidation today within a likely 1.3410-1.3470 range today. Prefer to buy USD on any weakness toward 1.3400.

Have a good trading day ahead all, happy Friday