Friday, 11 June, 2021

“The dollar is under pressure after consumer prices data revealed a surge in core inflation amid improving risk appetite. Inflation worries will keep most majors stable and remain the focus of market participants in the run up to the Fed’s meeting next week.”

Sam Cornford, Senior FX Dealer

Main Headlines

US consumer prices climbed at the fastest pace in thirteen years since 2008 across the month of May. The Labour Department has accredited a 5% rise in the consumer price index in May, a representative collection of US goods and services, to the continued buildup of inflationary pressure in the US economy. This is the largest hike in consumer price index since August 2008. Consumers are seeing higher prices for many of their purchases, particularly big-ticket items such as vehicles. Prices for used cars and trucks leapt 7.3% from the previous month, driving one-third of the rise in the overall index. The indexes for furniture, airline fares and apparel also rose sharply.

The UK economy grew at its fastest in 9 months in April, with strong retail spending and the full return of schooling boosting performance and raising hopes of a rapid rebound to pre-pandemic levels of output. The volume of goods and services produced by the UK economy rose 2.3 per cent in the month, more than offsetting the third lockdown’s decline of 1.5 per cent in the first quarter and putting the increase in gross domestic product on a path for a strong second quarter. Performing slightly better than already optimistic economists forecasts, GDP was 3.7 per cent below the pre-pandemic level in February 2020, the smallest gap since the start of the crisis.

GBP

Sterling is lower against most major currencies overnight. As part of the G7, Boris Johnson pledged to donate 100 million vaccines to poorer nations in the next year, with the G7 collectively pledging to donate 1 billion doses in an event to end the Covid-19 pandemic in 2022. The CMA is planning to investigate Amazon over it’s use of data to unfairly advance it’s own products, mirroring an investigation in the EU. The U.K. will receive data on Covid-19 cases on Friday which could delay the easing of restrictions on June 21st, as set out in the government’s roadmap.

EUR

The euro is well-bid against most majors in the early morning trading. French President, Emmanuel Macron spoke openly on the EU’s behalf at the G7 on the Northern Ireland Protocol, insisting the bloc will not renegotiate but remaining open to talks with Boris Johnson’s government on the matter. The  controversial Nord Stream 2 gas pipeline project is set to begin, after the pipelines running from Germany to Vybord under Baltic Sea were connected offshore. European leaders have increased pressure on the EU and US to block the project in recent months.

USD

The dollar is stronger against the pound and weaker against the euro this morning. President Biden will also weigh in on the split between the UK and European Union on the North Ireland Protocol, as well as on the prospects for a UK-US trade deal at the G7 in Cornwall. Whilst this is President Biden’s first overseas trip, having previously hosted South Korean leader Moon Jae-In in Washington, critics at home argue that he has taken his eye off of crucial legislation, including the infrastructure bill and voting rights bill.

Markets

Asian stocks were mixed Friday after a rally in U.S. shares and Treasuries on predictions that a rise in inflation is likely to be temporary. Equities edged up in Hong Kong and fell in Japan and China. European and U.S. contracts continued to climb in the S&P 500 to a record overnight and a rally in tech stocks boosted the Nasdaq 100. Stocks favoured by day traders, such as Gamestop Corp., plunged. The 10-year U.S. Treasury yield held most of a drop to 1.43%, its lowest point since March.

Main Economic Data/Central Banks/Government (All Times CET)

9:00 a.m.: Spain May CPI

9:00 a.m.: Turkey April Industrial Production

10:30 a.m.: BOE’s Bailey, Ramsden and Cunliffe, U.K.’s Sunak speak at BIS event

12:00 p.m.: U.K. sells bills

12:30 p.m.: Russia Rate Decision

3:00 p.m.: Russia April Trade

7:00 p.m.: Baker Hughes U.S. Rig Count

G-7 leaders’ summit starts in Cornwall

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