Sterling Dips On Inflation Data, US Dollar Lower Awaiting FOMC Rate Statement

Market Reviews

The British pound fell after release of inflation data. Inflation in the UK held steady at one year lows in May, further diminishing the chances for a rate hike by the Bank of England in the coming months. The Office for National Statistics (ONS) reported that the annual rate of inflation rose by 2.4% in May, unchanged from the previous month. On a monthly basis, consumer prices rose 0.4% in May, unchanged from a month earlier and in line with forecasts.

The US dollar is trading lower versus major currencies, as it shrugs off stronger than expected PPI data. Markets are awaiting FOMC rate hike, updated economic projections and press conference of Jerome Powell. US Headline PPI grew by 0.5% mom, 3.1% yoy in May, versus expectation of 0.2% mom, 2.8% yoy. Core PPI increased by 0.3% mom, 2.4% yoy, versus expectation of 0.2% mom, 2.3% yoy.

Given the fact that the markets have almost fully appreciated today's Fed rate increase, investors will be waiting for new economic forecasts. Market participants will also closely monitor new hints about the further monetary policy of the US central bank.

The Fed is not expected to change its economic projections, considering the latest economic data. In March, the Fed forecast economic growth to be at 2.7% in 2018, 2.4% in 2019 and 2.0% in 2020. Unemployment rate is projected to be at 3.8% in 2018, and 3.6% in 2019 and 2020. Headline CPI is forecast to be at 1.9% in 2018, 2.0% in 2019 and 2.1% in 2020. Core CPI is projected to be at 1.9% in 2018, rise to 2.1% in 2019 and stay there in 2020.

Also from the UK, PPI input was at 2.8% mom, 9.2% yoy, versus expectation f of 1.7% mom, 7.0% yoy, and prior 0.6% mom, 5.6% yoy. PPI output was at 0.4% mom, 2.9% yoy, versus expectation of 0.3% mom, 2.9% yoy, and prior 0.4% mom, 2.5% yoy. PPI output core was at 0.2% mom, 2.1% yoy, versus expectation of 0.1% mom, 2.2% yoy, and prior 0.2% mom, 2.0% yoy. UK House price index rose 3.9% yoy in April, below expectation of 4.4% yoy.

Eurozone industrial production fell by 0.9% mom in April versus expectation of -0.5% mom. Eurozone employment grew by 0.4% in Q1 versus expectation of 0.3% qoq. Swiss PPI increased by 0.2% mom, 3.2% yoy in May versus forecast of 0.2% mom, 3.2% yoy.