June 11, 2024

“Sterling declines after a short pullback against the steady US dollar. Meanwhile, investors are cautious ahead of US CPI and the Fed decision on Wednesday.”

Tim Hallinan – Trading Director

Main Headlines

The US Dollar Index remains in a narrow range early on Tuesday after small gains on Monday. In the afternoon, the US Treasury will conduct a 10-year Treasury note auction, and the Federal Reserve will begin its two-day policy meeting. A risk-averse market sentiment has helped the US Dollar maintain its strength against other currencies at the start of the week. Meanwhile, investors are cautious and avoiding significant positions ahead of Wednesday’s CPI data and the Fed’s policy announcements. The US central bank will also publish the updated Summary of Economic Projections.

Sterling fell back after encountering selling pressure during Tuesday’s London session. The GBP/USD pair weakens due to poor employment data for the three months through April and a strong US Dollar, driven by expectations that the FED will delay interest-rate cuts. The UK Office for National Statistics (ONS) reported a decline in the labour market for the fourth consecutive period, with employment falling by 140,000 workers in the three months to April, a smaller decline compared to the 177,000 decrease in the January-March period. Additionally, the ILO Unemployment Rate rose to 4.4%, exceeding the expected 4.3%. This labour market data suggests that firms are struggling with the repercussions of the BOE higher interest rates.

GBP

Sterling is weaker than most major currencies in the early morning trade. UK stocks fell on Monday, reflecting European losses after French President Macron called a snap election. Uncertainty about US interest rate cuts also played a role. The FTSE 100 dropped 0.2%, and the FTSE 250 declined 0.5% for the second straight session. Later in the day, Rishi Sunak is set to emphasise tax cuts in the Conservative manifesto to bolster his election campaign and tackle Labour’s 20-point poll lead. The manifesto will feature national insurance cuts, housing support, welfare crackdowns, increased defence spending to 2.5% of GDP, the revival of national service, and the continuation of the Rwanda asylum scheme.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. The surge of the far-right in European Parliament elections, prompting Macron to call a surprise national vote, has refocused attention on political risks in Europe. Meanwhile, China threatens retaliatory measures against European agriculture, potentially affecting a £4bn industry, amid an investigation into Chinese state subsidies for electric vehicles.

USD

The dollar is well bid against most major currencies this morning. The US equity market dominated global exchange-traded funds (ETFs) with a robust influx of $116.1 billion in May, signalling a recovery from April’s subdued activity of $69.6 billion in purchases. However, amidst indications of shifting monetary policy and market dynamics, there were noteworthy inflows into niche areas such as European equities, utility stocks, and high-yield bonds. According to data from BlackRock, high-yield bond ETFs attracted a net inflow of $5.4 billion in May, marking their strongest month since November and representing a significant reversal from the $2.2 billion outflows witnessed in April.

Markets

European stock futures edged higher as traders positioned ahead of this week’s US inflation data and Federal Reserve monetary-policy decision. Contracts on the Euro Stoxx 50 Index climbed 0.2% even as most Asian shares declined. Treasuries crept higher in Asia, while Bloomberg’s gauge of the dollar advanced for a fourth day.

Main Economic Events (All Times CET)

8:00 a.m.: UK ILO April Unemployment Rate8:00 a.m.: UK May Jobless Claims
9:00 a.m.: ECB’s Simkus speaks
9:10 a.m.: ECB’s Villeroy speaks
10:00 a.m.: ECB’s Rehn speaks
1:00 p.m.: ECB’s Holzmann, Villeroy speak
1:05 p.m.: ECB’s Lane speaks
4:00 p.m.: ECB’s Makhlouf speaks
4:00 p.m. FOMC begins two-day policy meeting
6:45 p.m.: ECB’s Elderson speaks
OPEC report on market outlook
China May New Lending, Money Supply as soon as today

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