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Short and sweet strength boost for US Dollar

Published: Thursday 14 June 2018

  • Euro enjoys a change in fortunes
  • Brexit still on track
​​By Killian Greenwood

The US Dollar got a very brief lift overnight as the Federal Reserve delivered the interest rate hike as expected. However it quickly lost steam as it was weighed down by concerns over a trade war between the US and China. The Federal Open Market Committee (FOMC) delivered the widely expected rate hike overnight, with a hawkish statement and economic projections, which gave the US Dollar a lift. As expected, they raised the Federal funds rate by 25 basis points. The members are more optimistic about economic developments in the US since the last meeting, noting “solid” growth, compared with “moderate” growth in the prior meeting. The staff upgraded the Gross Domestic Product (GDP) growth forecast for this year and the US inflation outlook for this year and 2019. Their projections suggest two more rate hikes, one more than was forecast in the previous meeting.

However, there was no big boost for the US Dollar, as concerns of an escalating trade war is weighing on Dollar strength. It has been reported that US President Trump is ready to snap tariffs on $50 billion of Chinese imports. The original list consists of around 1300 product lines. Trade advisor Peter Navarro’s comments suggested that the tariffs could be on a “subset” of the original list. The decision would be made today, and the final list of products would be unveiled tomorrow. This could have significant implications for a number of currencies, not just the US Dollar, given global trading relationships.

Today, the US Dollar is only trading slightly better than the Australian Dollar, which was weighed down by weaker domestic and Chinese economic data. US Retail Sales will catch most attention later in the day, when the US Import Price Index, Jobless Claims and Business Inventories will also be featured.

Euro enjoys a change in fortunes

The Euro, on the other hand, is picking up a little bit of strength today, as the focus now turns to the European Central Bank (ECB) rate decision and the press conference that follows, which should provide valuable insights into the sense of direction for Eurozone monetary and economic policy, and some clues as to what we can expect from the Euro in the coming weeks and months.

The ECB rate decision and press conference will be the primary focus today. Expectations are high after chief economist Peter Praet said it’s a “judgement call” this week on the €30 billion per month asset purchase programme, which is due to end in September. With Eurozone inflation picking up again in May, the ECB may be much more comfortable ending asset purchases this year – this could have a pronounced effect on the Euro.

Germany released their May Consumer Price Index (CPI) final results today, coming in as forecast with a 0.5% increase month-on-month. Overall figures show an increase in inflation for Germany, thanks to rising energy and consumer prices.

Brexit still on track

In the UK, Prime Minister Theresa May managed to fend off the final challenges to her Brexit blueprint yesterday. The UK’s departure from the EU is still on course, however, her authority has been weakened in the process. Divisions within the opposing Labour Party have surfaced, as 90 backbenchers defied leader Jeremy Corbyn by not abstaining on an amendment that would have kept Britain in the European Economic Area (EEA). 

UK Retail Sales is a key focus for European markets today, which showed a welcome jump for May, attributed to the Royal Wedding and summery weather. The soaring temperatures in the UK led to increased food and drink buying and a boost in business for DIY stores and garden centres.
Football jokes

Why did the football quit the team?
It was tired of being kicked around!

Why aren’t football stadiums built in outer space?
Because there is no atmosphere!

Why are footballers like babies?
They both dribble!

Today's Major Economic Releases

Market BST Data/Event Previous Expected
GBP 09:30 UK: Retail Sales 1.6% 0.5%
EUR 12:45 European Central Bank Interest Rate 0.00% 0.00%
EUR 13:30 European Central Bank Press Conference    
CAD 13:30 US: National Housing Price Index 0.0% 0.2%
USD 13:30 US: Retail Sales 0.3% 0.4%
USD 13:30 US: Core Retail Sales 0.3% 0.5%
USD 13:30 US: Unemployment Claims 222k 223k

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