Despite all the news and events this week (US citizen releases from N.Korea, President Trump reneging on Iran nuclear deal, Bank of England policy meeting etc…) FX price action has been subdued. Major currencies have moved by less than 1% versus the Dollar since last Friday, bar the South African Rand, Swedish Krona (finally making a come-back) and Rouble with the Russian economy a major beneficiary of higher crude oil prices.
The USD weakened 0.7% yesterday, erasing three days of gains following data showing US headline CPI-inflation up only marginally in April to 2.5% yoy. Recent US data has indicated US growth momentum may have slowed further in early Q2 with the markets sticking to their core scenario of only two further Federal Reserve rate hikes before end-year. It may be premature to forecast the Dollar’s demise but it is conceivable that its rally has run out of steam.
Sterling has been stable after yesterday’s initial post policy meeting sell-off and markets are back to square-one and re-focussing on monthly UK macro data releases ahead of the August MPC meeting. Bank of England Governor Carney still seems keen to hike rates before end-year but at this juncture it feels like he is trying to fit a square peg in a round hole.
It is a quiet day on the data front today although ECB president Draghi is due to speak at 14.15 (at the 8th edition of The State of the Union organised by EUI in Florence). He is unlikely to change his well-worn message and the Euro may well remain within its narrow ranges near-term.
