Lower than expected UK inflation should see BoE keep rates unchanged

Good morning

We had a slightly mixed bag of UK inflation numbers this morning.  CPI was a touch lower than expected with a headline of 2.8% and core at 2.6%, while PPI and RPI were a little firmer if we include upward revisions to last months readings.  All in all though, a fairly benign set of numbers that shouldn’t encourage BoE to do anything other than keep rates on hold tomorrow, particularly as the CPI readings were well below those forecast by BoEs own staff.

GBPUSD was up around 1.3430 before the release but dropped a few points to 1.3410 while GBPEUR which had been testing up to 1.1600 earlier in the week has dropped to 1.1555.  Other GBP crosses such as GBPAUD, GBPNZD and GBPNZD are all pretty much unchanged at 1.9000, 2.3050 and 215.00 respectively.

Oil prices continue to adjust lower with Brent and WTI now $78.15 and $74.60, well down from their March peaks around $120 at the start of the Iran war.  Plenty rides on this peace deal getting signed later this week and then of course it must be adhered to. While we are on the subject of war and peace, I see Russia opened fire on a yacht in the English Channel yesterday.  There is a difference of opinion as to the events surrounding the incident, Russia insists the yacht was drifting too close to their frigate while the couple on board the yacht said they were definitely not on a collision course. 

This evening we will have the FOMC rate announcement, the first such meeting to be chaired by Warsh.  As Trump’s choice, he is likely to be on the dovish side although recent events have made it difficult to argue the case for a rate cut, with inflation too sticky and the US labour market strong.  We know he prefers alternative inflation counting measures such as trimmed mean over the usual CPI and core PCE but whether other members will join him in this view remains to be seen. 

In summary, Fed rates to remain unchanged, Warsh’s statement will be the main area of interest.  I’m midly inclined to look at some cheap, short term downside USD plays just in case he does come out more dovish than expected, for example an overnight 1.1625 EURUSD call costs around 20-25 usd pips.

We’ll have EU inflation and US retail sales data released today but I’d be surprised if that brings much in the way of volatility.  FOMC the biggest deal, but NZD watchers should note NZ GDP numbers out tonight.  UK employment data will be released early tomorrow morning.

So, onto football.  England’s big day is here as they take on Croatia in their first world cup group match this evening.  I must confess I had been feeling confident that England would do well in this tournament but we’ve already seen some strong performances from other teams and I’ve lost a little bit of that confidence.  France beat a plucky Senegal team yesterday, Messi scored all three goals in Argentina’s win over Algeria and Haaland knocked in a couple of goals for Norway in their 4-1 win over Iraq.   Still, England are firm favourites to win this evening, let’s hope the bookies are right!

Have a great day…

-  10.00 EU HICP

-  13.30 US retail sales

-  14.00 ECBs Sleijpen speaks

-  15.00 US pending home sales

-  19.00 FOMC rate announcement

-  19.30 FOMC press conference

-  23.45 NZ GDP

-  07.00 UK employment