Chaotic day for Dollar

Today's Highlights

• Australian Dollar under pressure

• Sterling slips again

Current Market Overview

The US Dollar had a chaotic day yesterday, as US inflation data was reported slightly lower. US consumer price inflation (CPI), which has been curtailed by falling energy prices, came in at 1.8%, versus an expectation of a 1.9% rise. Core inflation, which disregards volatile food and energy, was also lower at 2.0%.  The Federal Reserve is due to meet next week and, although the inflation data will be closely watched, it is unlikely that they would act on one set of figures.

The US Dollar did manage to find some strength, however, as trade tensions remained in focus after President Trump expressed optimism over making a trade deal with China. He stated that he “had a feeling” that a deal could be reached and that was enough for traders to once again turn bullish regarding the USD.

Australian Dollar under pressure

Overnight, it was reported that the Australian unemployment rate was higher than expected in May, which will lead to further calls for a cut in interest rates before the end of the year. The unemployment rate was actually unchanged at 5.2%, although the market was looking for a decline to 5.1%. The Reserve Bank of Australia (RBA) has stated that the unemployment rate will have a huge bearing on policy and that rates will be cut if the jobless rate doesn’t fall soon. Interest rates are already at record lows and the market is anticipating further cuts this year, so for now, the Australian Dollar should remain under pressure.

Sterling slips again

Sterling lost ground yesterday after the opposition Labour party lost a motion to wrestle control of UK parliament and thwart any chance of a no deal Brexit when the deadline hits in October. Labour lost the motion by 11 votes, as the Democratic Unionist Party (DUP) voted with the government and eight labour MPs defied the party whip. This now means that the new UK Prime Minister will not be hamstrung while negotiating with the EU and that a no deal Brexit is back on the table. Sterling erased all its gains on the news and attention will now turn to the Conservative Party’s search for a new leader. If a highly Eurosceptic Prime Minister wins that race, the Pound will fall further and 1.20 versus the US Dollar and 1.1000 versus the Euro will be in traders’ sights.

Political and trade talks in focus

The data slate is incredibly light today, so attention will inevitably focus on the Conservative leadership race and in the US focus will be on any developments around the trade wars with China and Mexico.