USD remains bid after Warsh's first FOMC meeting as Chair

Good morning

Seven BoE members voted to keep rates unchanged yesterday, while two members, Pill and Greene, voted for a rate rise in a move they say would be proactive.  Bailey is happy with policy where it is for now, BoE do insist they are ready to act if appropriate, but the recent peace deal with Iran and the lower oil prices that brings is enough for some to lower their BoE rate forecasts.  HSBC have changed their forecasts from previously two hikes, one each in July and September, to no change at all in 2026.  They even see the next move in rates is likely to be lower although we’ll have to wait until late 2027 according to them.

UK retail sales this morning looked quite upbeat not only surprising to the upside this month but also with upward revisions to last months pretty dismal set of numbers.  Some are putting the higher spending down to a spell of good weather, if that’s the case then June data should be decent as well, it was already scorching hot on my early morning walk with the dog today and its only going to get hotter next week with temperatures forecast to get to the mid 30’s. 

In other UK news, Andy Burnham won a decisive victory in the Makerfield by-election which opens the door for his Labour party leadership challenge.  Burnham made some market-moving comments before he became and MP so it is possible his victory and potential role as PM could spark a bit of volatility.  For now, GBPUSD is down at 1.3200, more a sign of USD strength with EURUSD now 1.1445 but GBP continues to suffer most, the GBP crosses sees the pound trade at 1.1530, 1.8830, 2.3000 and 213.00 against EUR, AUD, NZD and JPY.

USDJPY is currently 161.30, just 50 pips or so off the July 2024 highs which triggered large-scale intervention that took the pair down to below 142.00 in the space of three weeks or so.  We’ve already seen that Japan are willing to intervene again, their action at the end of April confirms this, but it is not clear where their line in the sand will be.  Fighting a strengthening US dollar will be a tough game to play and would surely need coordinated action rather than Japan acting on their own.

In other news, I see that Qantas will be offering non-stop flights from London to Sydney in just over a years time.  The journey will take around 20 hours, that’s a long time on one aeroplane and I’m sure it won’t be for everyone.  Mind you, the specially designed long-distance plane will have areas for wellbeing and exercise, reducing the number of seats available so I’d expect fares to be high. 

TO sport now and England are making hard work of the test match against New Zealand who managed a very respectable 391 all out and have England on the ropes at 222/6.  We’ll need some amazing work from our tail enders if we are going to get close to the Kiwi’s first innings total. 

In golf, the US Open has started.  US PGA winner Aaron Rai has been unable to repeat his performance ending on +4, Justin Rose who recently converted to McLaren irons is only a little better at +3, I wonder if he is ruing that decision.  OK, they look cool, but they need to work!   Wyndham Clark leads the field at -6, McIlroy is -1 and Scheffler is down at +2.  Never write him off mind you. 

Plenty of world cup action over the weekend as well as we move into the second round of group matches.  If I’m honest none of the fixtures are ones I’d drop everything to watch and with the timings of the kick-offs it’s not even as though its something to do if the heat outside becomes unbearable.  New Zealand play in the early hours of Sunday morning, if I read correctly they have not lost a world cup match since 1982.  There’s one for the pub quiz.

Not much on the calendar today but with US/Iran peace deals, possible Labour leadership battles and potential intervention from Japan we can’t take it easy just yet.  Next week brings some decent data with CAD and Aussie CPI, global PMI’s, Aussie employment and the biggest one of the week, the US core PCE numbers, still a major announcement even if Warsh would prefer to move away from this particular indicator.

Have a great day, and great weekend as and when it come…

-  11.15 ECBs Cipollone speaks

-  11.30 ECBs Elderson speaks

-  13.30 CAD retail sales

-  15.30 ECBs Lane speaks