UK and Australia sign trade deal
The UK and Australian Prime Ministers toasted their signing of a trade deal between the two countries with Tim Tams and Penguin bars. How very appropriate. Sometimes cans of Fosters and pale ale just won’t do it. The deal isn’t the largest the world has ever seen but it is a significant first step in Britain’s drive for independent trade arrangements.
UK inflation up significantly – GBP follows
That isn’t the reason for Sterling’s solid start to the day though. Consumer inflation in the UK is up 2.1% on the year to May and producer prices (output) rose 4.6% in the same period. Those were well above expectation and the Pound instantly appreciated in cost. GBPUSD is above $1.41 again, GBPEUR is pushing that €1.1650 level again and the rise is evident against the Australasian Dollar, the Canadian Dollar and others.
Chinese data disappoints
By way of contrast, Chinese industrial production and retail sales data was below expectation, albeit still very positive, and Chinese unemployment rose. That was a surprise. Also, Japanese machinery orders and exports data were all below the market forecasts. So, the Asian markets were a little subdued overnight That would have had a negative impact on the Asian and Australasian currencies. GBPJPY is up neat the 155.5 level: a full yen higher than on Monday.
Federal Reserve is the USD key
Other than some labour cost and wages data from the Eurozone, the rest of the morning session will be a little quiet. However, the afternoon will make up for that. We can expect a tsunami of housing market data from the US, along with crude oil inventories and then the eagerly anticipated US Federal Reserve interest rate decision. I think it is a foregone conclusion that the Fed won’t raise the base rate at this meeting but they are expected to change some of their sentiment re the timing and pace of monetary tightening. The nature of that change will drive the USD. Hints of early or dramatic changes will strengthen the USD. Any hesitancy from the Fed will drop its value. So, the late afternoon will bring USD volatility before and after that statement is released. Hang on to your hollyhocks, as they say.
The Canadian Dollar should also be lively when Canada’s inflation data is published at 13:30 GMT. A slight uptick in the inflation rate is expected and that would strengthen the CAD. We will also get a speech from the Bank of Canada’s governor later today.
NZ GDP rebound expected overnight tonight
Overnight the Kiwi Dollar will be in focus when NZ GDP data is released. A healthy rebound is expected from the annual growth rate. Anything north of 0.9% will boost the Kiwi Dollar. GBPNZD is just below $1.9761 again; a level that has stopped it dead several times since September 2020. This could be another such occasion. GBPNZD could fall faster than a Greenpeace microlight, so be careful out there.
Oh, and just to throw a spanner in the climate change debate, on this day in 1882, in Dubuque Iowa, 17-inch hailstones fell, weighing 1.75 Lbs (800 grams}. 14 years later and in some 500 miles south of there (and to the West) in Fort Mojave, California, the temperature hit 127 degrees Fahrenheit. That’s nearly 53 degrees Celsius. It makes the 20 degrees we have in London feel wonderfully temperate.