June 18, 2024

“The next few days are critical for sterling. Fresh CPI data, a Bank of England rate decision, retail sales, and the PMIs all come in quick succession. The focus for today is on the dollar, however, with Fed speakers and retail sales set to give the greenback a jolt.”

Tim Hallinan – Trading Director

Main Headlines

The Reserve Bank of Australia held its cash rate at 4.35% in a hawkish policy meeting that has lifted the Australian dollar this morning. It repeated a now familiar line about not ‘ruling anything in or out’ and warned that ‘the process of returning inflation to target is unlikely to be smooth’ after inflation readvanced to 3.6% in April. Markets revised down their easing bets to only 15bps this year.

According to a report from the Information Technology & Innovation Foundation in Washington, the US is around 15 years behind China in its nuclear power industry, owing to Beijing’s state backing and heavy financing. Although the US has the highest number of plants, China has 27 under construction, with the average timeline at around seven years.

GBP

Sterling has stuck to a tight range in the early stages of the week ahead of a deluge of critical economic data. The consensus for tomorrow’s is for UK inflation to hit a critical threshold with an on-target 2.0% print that, while unlikely to prompt a pre-election rate cut at Thursday’s Bank of England decision, will make communicating a policy hold to the public a significant challenge, particularly if we get a surprise sub-2.0% figure. Policymakers are set to lean on an expected 3.5% core number and still sticky services inflation to hold caution, the latter of which which is tracking well above the BoE’s forecasts from the previous meeting. Retail sales and the PMIs follow on Friday.

EUR

The euro’s politics-induced decline has stabilised this week as French bond turmoil has cooled off and markets have become marginally less concerned with the prospect of a Le Pen win in France. Her pledge not to go overboard with unsound fiscal policies has soothed some of the worst fears in markets, largely halting the euro’s losses for the moment. Today, we get the final CPI print for May alongside the ZEW economic sentiment survey. The uptick in inflation to 2.6% helped to bolster bets for a slower, more controlled ECB rate cutting cycle, and measures of eurozone sentiment have been on an upward trend for some time now as the growth outlook has improved and rate cuts have come into view. The eurozone ZEW figure has surprised to the upside for eight consecutive months, having recently marched to its highest level in more than two years.

USD

The dollar is trading modestly softer this week as its peers have recovered, ahead of a slew of Federal Reserve speakers and a retail sales print. Speeches are back in the diary now that the pre-meeting blackout has ended, with Barkin and Kugler among those taking to the podium this afternoon. Continued caution about the trajectory for inflation is likely to be the chorus offered to markets, although the more dovish members of the FOMC could give a stronger acknowledgement to the recent progress. Retail sales are expected to recover from the 0.0% figure in April with a 0.3% expansion in May, although the data trend remains one of a softening consumer.

Markets

At the risk of sounding like a broken record, US equity markets surged to further record highs yesterday, fuelled by a fresh rally in tech. European and Asian shares were lifted, too, despite a rebound in US Treasury yields.

Main Economic Events (All Times CET)

6:30am: Reserve Bank of Australia Rate Decision
11:00am: Eurozone Final CPI & ZEW Economic Sentiment
2:30pm: US Retail Sales
3:15pm: US Industrial Production

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