16/06 – Fed meeting crucial this evening

Jeremy Thomson-Cook
Jeremy Thomson-Cook 16 June 2021

GBP: Inflation breaks above target for first time in 2 years

EUR: As the dollar goes so will the euro

USD: No apple carts being upset

Sterling

Investors remain keen to test sterling’s downside at the moment, with the pound inching lower through yesterday’s session before recovering through the afternoon. While Monday’s announcement of a 4 week extension to the current Covid guidelines may not have damaged sterling materially, it may offer some investors an excuse as to why to not buy the pound until more is known.

If that is true, then data will help flesh out the picture further. This morning’s inflation numbers will have some investors asking just how transitory price rises are in the UK with inflation now above the Bank of England’s target for the first time since July 2019. Comments from Bank of England members become more important in such a circumstance too; who will start to show their desire for higher rates?

Euro

Euro is playing out exactly as expected and following the path of the USD into tonight’s Fed meeting. Unless the US central bank is set on upsetting the apple cart tonight – chances of which we think to be low – then the broader trend of dollar weakness, and therefore euro strength should continue to play out.

US dollar

Tonight’s Federal Reserve meeting is certainly the most important data point of the entire week. It comes amid market conditions that the central bank would likely describe as ideal; prices are high, volatility is low and expectations seem balanced. Why would the Fed inject any notion of uncertainty into that right now? Cui bono?

In an environment wherein the statement, press conference and economic projections are not headline grabbing then the low volatility, sell the dollar environment should continue, in turn allowing GBPUSD and EURUSD to gradually move higher.

Elsewhere

Oil prices are continuing to move higher, driving towards $75 a barrel. The recovery narrative as well as the low volatility environment could easily continue this, aiding gains for NOK, RUB, IDR, CAD, and other commodity currencies in the coming sessions.

Market rates

Today’s interbank rates at 08.19 against sterling. Movement vs yesterday.

Euro €1.164 ↑
US dollar $1.411 ↑
Australian dollar $1.833 ↑
South African rand R19.43 ↑
Japanese yen ¥155.2 ↑

Have a great day.