European FX Outlook: UK inflation headlines as Fed’s rate hike becomes a sure shot

What you need to know before markets open

  • Trump-Kim summit saw rival; leaders sign a “very important document” on denuclearization, but only Trump knows how important and how long-lasting it is.
  • The UK wages disappointed in May with claimant count falling saving the reputation of May labor market report and making a day for Sterling. For detail read my Analysis here.
  • The UK inflation is expected to accelerate in May to 2.5% y/y while core inflation is expected to remain unchanged at 2.2% y/y. For details read my Preview here.
  • The UK government found a support in House of Commons that voted by 25 votes majority on seven out of 15 laws that the House of Lords amended. The House of Commons voting saga continues on Wednesday. 
  • The US inflation data met the expectations with headline inflation rising 2.8% y/y and core inflation increasing 2.2% y/y, confirming the Fed’s path of gradual rate increasing starting Wednesday afternoon. For details read my Analysis here.
  • The US Federal Open Market Committee (FOMC) is set to hike rates with the move fully priced-in and all eyes on rate outlook the policymakers will provide in the economic projections. For details read Valeria’s Preview here.

Wednesday’s market moving events

  • The RBA Governor Philip Lowe said overnight that if the economic growth is sustained, next move in rates will be up, not down.
  • The UK headline inflation is expected to accelerate to 2.5% y/y in May with core inflation remaining unchanged at 2.2% y/y. For details read my Preview here..
  • The Eurozone industrial production is expected to fall -0.5% m/m in April decelerating to 2.8% y/y.
  • The UK House of Commons voting saga on amendments from House of Lords continues on Wednesday.
  • The US core factory gate inflation is expected to rise 0.2% m/m while increasing 2.3% y/y in May.
  • The Federal Open Market Committee (FOMC) is expected to hike rates to 2.0%. As the rate hike is widely expected, the market is set to pay attention to the outlook for rates and Fed’s chairman Powell speech after the decision. For details read Valeria’s Preview here.

Major market movers

  • The US Dollar retreated lower from post-Trump-Kim summit euphoria on Tuesday, but with the FOMC hiking rates regained its positions on Wednesday.
  • Euro was unable to withhold positions above 1.1800 and retreated lower ahead of FOMC expectedly hiking rates today. 
  • Sterling was range bound between 1.3350-1.3420 as the House of Commons backed the UK government in the first day of voting on House of Lords proposals.
  • Watch GBP factoring in the UK inflation data and read more about how to trade it with GBP/USD here. 

Tuesday’s macro summary

  • French Non-farm payrolls increased 0.2% in Q1 2018 after rising 0.4% in the previous quarter.
  • The UK claimant count unexpectedly fell by -7.7K in May with the unemployment rates dwelling at a 4-decade low of 4.2%. The wage growth including bonuses rose 2.5%y/y  while wages excluding bonuses increased 2.8% y/y.  
  • The UK Justice Minister Lee resigned ahead of the parliamentary vote on Brexit-related laws.
  • German ZEW index decelerated further to 16.1 in June, down from 2.4 in May. 
  • The US inflation accelerated to 2.8% y/y in May while core inflation rose 2.2% y/y, meeting the market expectations. 

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