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The Greenback pared some of its earlier gains as the FOMC statement loomed.

The Greenback wasn’t the weakest currency of the morning London session, though, since that (dis)honor goes to the embattled pound.

Meanwhile, the Kiwi and the Aussie were apparently the main beneficiaries of the Greenback’s weakness during the morning London session, although the risk-on vibes also likely helped to boost the two higher-yielding currencies.

  • Swiss PPI m/m: 0.2% vs. 0.3% expected, 0.4% previous
  • U.K. CPI m/m: 0.4% as expected, same as previous
  • U.K. CPI y/y: 2.4% as expected, same as previous
  • Core U.K. CPI y/y: 2.1% as expected, same as previous
  • HPI in the U.K. y/y: 3.9% vs. 4.4% expected, 4.2% previous
  • U.K. PPI input m/m: 2.8% vs. 1.7% expected, 0.6% previous
  • U.K. PPI output m/m: 0.4% vs. 0.3% expected, 0.4% previous
  • Euro Zone employment change q/q: 0.4% vs. 0.3% expected, same as previous
  • Euro Zone industrial production m/m: -0.9% vs. -0.6% expected, 0.6% previous
  • FOMC statement and presser later

Major Events/Reports:

U.K. CPI report

The U.K.’s May CPI report was released earlier in the day. And according to the report, headline CPI increased by 0.4% month-on-month, which is within expectations and matches the previous month’s paces.

Year-on-year, CPI rose by 2.4%, which is also within expectations and also matches the previous month’s annual reading.

More importantly, the +2.4% annual reading also meets the BOE’s own forecast that CPI will increase by 2.4% in May, as reported in the BOE’s May Inflation Report, so rate hike expectations probably didn’t suffer.

However, a closer look at the CPI report revealed that 8 of the 12 CPI components printed weaker annual readings, which point to underlying weakness.

As for the 4 remaining CPI components, 3 maintained their pace, while only one – the transport component – printed a stronger reading. In fact, the 4.7% jump in the cost of transportation (+2.4% previous) helped to offset the weakness in the 8 other CPI components.

And transportation costs jumped, in turn, largely because of the 37.1% surge in the cost of liquid fuel. Higher fuel costs are not very sustainable, though.

Trade-related rumor

According to a report from Politico that (quite naturally) cited “two sources briefed on internal deliberations,” U.S. President Trump is supposedly “expected to impose tariffs on Chinese goods as soon as Friday or next week.”

The U.S. is expected to print a final list of Chinese goods that will be subject to tariffs this Friday, but the U.S. didn’t say when tariffs will take effect, if at all.

The rumor, if true, therefore increases the risk of a full-scale trade war between the U.S. and China.

Risk-taking ahead of FOMC statement

The major European equity indices had a wobbly start but it soon became clear that risk-taking has returned since they eventually began to climb broadly higher as the session progressed.

And according to market analysts, the risk-on vibes were due to strong demand for tech shares and expectations for stronger company earnings.

  • The pan-European FTSEurofirst 300 was up by 0.25% to 1,519.86
  • Germany’s DAX was up by 0.29% to 12,879.92
  • The blue-chip Euro Stoxx 50 was up by 0.22% to 3,482.35

The risk-friendly vibes also helped to support U.S. equity futures, which is a sign that the risk-on vibes may spillover into the U.S. session. That may change, depending on what the Fed has to say later, however.

  • S&P 500 futures were up by 0.20% to 2,793.75
  • Nasdaq futures were up by 0.29% to 7,247.00

Major Market Mover(s):

GBP

The pound was already feeling some bearish pressure ahead of the U.K.’s CPI report. And that bearish pressure only intensified when the CPI report was released, even though the readings met the market’s expectations, as well as the BOE’s own forecasts.

As noted earlier, however, the details of the CPI report were not too great. And that’s likely why more bears came out of the woods to maul the pound.

GBP/USD was down by 25 pips (-0.19%) to 1.3330, GBP/AUD was down by 69 pips (-0.39%) to 1.7577, GBP/NZD was down by 116 pips (-0.61%) to 1.8947

USD

The Greenback shed its gains from earlier and was the second worst-performing currency after the pound.

There was no apparent catalysts for the Greenback’s retreat, but it’s likely that some traders were taking some profits off the table ahead of the FOMC statement. After all, the Greenback has been mostly stronger since Monday.

USD/CAD was down by 13 pips (-0.11%) to 1.3021, USD/JPY was down by 5 pips (-0.05%) to 110.54, USD/CHF was down by 5 pips (-0.06%) to 0.9879

NZD & AUD

The higher-yielding Aussie and Kiwi fought for the top spot during the session, as the Greenback fell and risk-taking prevailed.

There can be only one champion, however. And that is very clearly the Kiwi since AUD/NZD was down by 23 pips (-0.21%) to 1.0779.

NZD/USD was up by 30 pips (+0.42%) to 0.7034, NZD/CHF was up by 28 pips (+0.40%) to 0.6951, NZD/JPY was up by 30 pips (+0.39%) to 77.77

AUD/USD was up by 15 pips (+0.20%) to 0.7583, AUD/CHF was up by 13 pips (+0.18%) to 0.7493, AUD/JPY was up by 14 pips (+0.17%) to 83.83

Watch Out For:

  • 12:30 pm GMT: Headline (0.3% expected, 0.1% previous) and core (0.2% expected, same as previous) readings for U.S. PPI
  • 2:30 pm GMT: U.S. crude oil inventories (-1.4M expected vs. 2.1M previous)
  • 6:00 pm GMT: Fed expected to raise Fed Funds Rate target range by 25 bps to 1.75%-2.00% during FOMC statement; read Forex Gump’s Event Preview
  • 6:30 pm GMT: FOMC press conference