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U.S Inflation Figures and ECB Minutes to Drive the USD and the EUR

Bob Mason
The risk tap opened this morning, providing much needed support for the Asian equity markets and the commodity currencies, with focus now shifting to the release of the ECB policy meeting minutes and U.S inflation figures.

Earlier in the Day:

Economic data released through the Asian session was on the lighter side this morning, with key stats limited to June house price figures out of the UK, which had no influence on market risk sentiment through the session.

Following Wednesday’s risk off moves across the global financial markets, risk aversion eased through the Asian session, with demand for the safe havens easing following a sell-off across the commodity currencies on Wednesday that saw the Aussie Dollar and Kiwi Dollar tumble by 1.27% and 1.16% respectively on the day.

At the time of writing, the Aussie Dollar was up 0.35% to $0.7392, with the Kiwi Dollar up 0.22% to $0.6774 as the markets managed to brush aside the possible effects of an extended trade war, focusing on the positives and not the underlying single threat to the respective economies.

For the Japanese Yen, the pickup in risk appetite that saw the upward move in the equity markets weighed, the Yen down 0.29% to ¥112.34 at the time of writing.

In the equity markets, there was some respite from Wednesday’s sell-off, with the majors bouncing back through the Asian session in spite of Trump’s talk of more tariffs, with the Nikkei and ASX200 closing out the day with gains of 1.17% and 0.85% respectively, while the CSI300 and Hang Seng were up 2.16% and by 0.58% respectively.

The Day Ahead:

For the EUR, key stats through the morning included finalized June inflation figures out of Germany and France, with May industrial production figures scheduled for release later this morning.

In spite of downwardly revised inflation figures showing that French inflation stalled in June, there was little impact on the EUR through the release, with the EUR finding support through the early part of the day.

A pickup in economic activity in the 2nd quarter, supported by solid numbers out of German points to solid industrial production numbers for the Eurozone that should be EUR positive later this morning.

Outside of the stats, the ECB’s monetary policy meeting minutes are also scheduled for release, which could pin back the EUR should there members talk of a need to maintain policy in the event of an escalation in the trade war between the U.S and it’s trade partners.

At the time of writing, the EUR was up 0.12% to $1.1688, with the ECB minutes and noise from the Oval Office likely to be the key drivers through the day.

For the Pound, it’s another quiet day on the data front, with no material stats scheduled for release following the release of June house price figures in the early hours of the day that had limited to no impact on the Pound through the morning.

While sentiment towards the UK economy has improved, following a pickup in economic activity through the 2nd quarter, it could all become unhinged should Theresa May get ousted, though a tumble in the Pound would certainly raise the stakes for the BoE that has struggled with balancing inflationary pressures and some weakness in economic growth and softer wage growth since the EU Referendum.

At the time of writing, the Pound was up 0.09% to $1.3217, with Brexit and political uncertainty bringing $1.30 levels back into play.

Across the Pond, key stats through the day include June inflation figures and the weekly jobless claims numbers, with focus likely to be on the inflation numbers, barring a material rise in the initial jobless claims figures.

Forecasts are for the annual rate of core inflation to pick up from 2.2% to 2.3% in June, though with the FED having already stated its willingness to allow inflation to overshoot its 2% target, any Dollar gains are likely to ease after the release of the figures, with concerns over the ongoing trade war of greater significance to the U.S economy.

Outside of the data, FOMC members Kashkari and Harker are scheduled to speak, with Harker likely to have greater influence on the Dollar, should there be any forward guidance on policy.

At the time of writing, the Dollar Spot Index was down 0.02% to 94.699, with inflation numbers and the Oval Office the key drivers through the day.

Across the border, key stats out of Canada are limited to house price figures that will have a muted impact on the Loonie, as the markets reflect on the BoC’s outlook on rates and possible influences that include a prolonged trade war.

At the time of writing, the Loonie was up 0.14% to C$1.3190, with market sentiment towards the effect of a prolonged trade war on the Canadian economy and, ultimately BoC monetary policy, providing direction through the day.

This article was originally posted on FX Empire

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