It’s been a rather quiet session in FX markets today. The Dollar trade-weighted index has now been trading in a range of only 0.8% in the past month and FX volatility in most markets remains very subdued.
Sterling has stabilised, with GBP/USD inching away from the 1.24 level and markets showing little reaction to UK CPI-inflation data for June in line with analysts’ expectations. Headline was unchanged from May at 2.0% yoy while core inched up to 1.8% yoy from 1.7% yoy. The elephant in the room remains Brexit and the question of whether the new prime minister, who will be announced on Tuesday, will be willing to call the EU’ bluff and take the UK out of the EU without a deal. The newly appointed European Commission head, said today that the Withdrawal Agreement was non-negotiable while chief EU negotiator Michel Barnier was reportedly very critical of the British government’s stance that the Withdrawal Agreement was dead if the EU did not grant further negotiations.
The only move of note has been in the Kiwi Dollar, with the NZD/USD rallying to a 3-month high of 0.674 and the trade-weighted index appreciating 0.8% to its strongest level since 2 April. The catalyst for this sustained appreciation in the Kiwi Dollar is not obvious, with CPI-inflation data for Q2 released on Monday coming in broadly in line with expectations, although markets have become less convinced that the RBNZ will cut its policy rate again at its August meeting.
