Article Highlights

  • German CPI (Final) m/m: -1.1% vs. -1.0% forecast/previous; y/y at -0.4% vs. -0.3% forecast/previous
  • Swiss Producer & Import Prices m/m: -0.6% vs. -0.7% forecast, -0.4% previous
  • European Industrial Production m/m: 0.0% vs. 0.2% forecast, 0.1% previous
  • Bank of England Inflation Report released: low inflation outlook, but still sees rate hike as a possibility
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Forex volatility picked up big time during the morning London session thanks to a string of news reports from both the economic and geopolitical fronts.

The Bank of England’s inflation report was the economic focus of the morning, sparking quick moves in the British pound as sentiment from BOE Governor Carney was not as dovish as expected during his news conference after the release. The report included commentary that the BOE saw low inflation (possibly deflation later in the summer) and the openness to cut if needed, but that rate hikes are still the most likely next move in monetary policy.

The not-so-dovish report had the British pound moving fast and furious.  After dropping ahead of the report as traders expected another dovish release, the market quickly rallied much higher after everything was digested. Sterling is higher on the session, with strong momentum still behind the move going into U.S. trade:

GBP/USD is up 132 pips (+0.87%) to 1.5361, GBP/JPY is up 52 pips (+0.28%) to 183.99, and EUR/GBP is down 52 pips (-0.71%) to .7379

The other major economic headline of the morning is outside the world of the major currencies as we saw Sweden’s central bank, the Riksbank, introduced negative rates today, joining the recent trend of central bank easing. This of course hits the Swedish crown hard, but another central bank quantitative easing lifts broad risk sentiment, pushing higher-yielding currencies and the equity markets higher. For those who like to trade exotic currencies, the crown may be one to watch for a while:

EUR/SEK is up 1,573 pips (+1.66%) to 9.6374, USD/SEK is up 1,375 pips (+1.64%) to 8.5039

Also lifting risk sentiment is the news of a ceasefire in Ukraine, with Germany, France, Russia, and Ukraine coming to an agreement to end the fighting. With positive news from both the central and geopolitical front, forex traders are moving out of the safe havens like the Japanese yen, which is lower after an initial spike higher at the London open (possibly caused by the failure of Greece and the EU to come to an agreement on the bailout). Volatility remains high in Japanese yen pairs as we near the end of European trade.

The forex calendar for the Thursday afternoon London/morning U.S. session is lined up with mostly U.S. data and a read on Canadian housing to hopefully keep currency volatility rolling.

We just saw the 1:30 pm GMT data release of schedule economic data, with U.S. and Canadian house price index data in the red.  The headline retail sales number came in much weaker at -0.8% vs. -0.4% forecast, and the U.S. initial claims data came in above the previous week’s read of 278K at 304K. The initial reaction seems to be USD selling with USD/JPY moving lower to 119.76, down 67 pips (-0.56%) on the session.

At 3:00 pm GMT, we’ll round out the forex calendar for the session with U.S. business inventories (0.2% forecast/previous).  This is a mid-tier data point, so there may not be much reaction in the currency markets to this release, which means the focus may continue to be on developments with the Ukraine and the Greek bailout negotiations. Stay frosty!

See also:

Asia Session Recap

U.S. Session Recap

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