Market Drivers for July 18, 2018
- Sterling tests 1.3000 off weak inflation data
- EZ CPI in line
- Nikkei 0.43% DAX 0.83%
- Oil $67/bbl
- Gold $1222/oz.
- Bitcoin $7300
Europe and Asia
GBP: UK CPI 1.9% vs.2.2%
EUR: EZ CPI 2.0% vs. 2.0%
North America
USD: Housing Starts 8:30
USD: Fed Chair 10:00
UK CPI printed considerably cooler than expected, sending cable to 10-month lows in morning London trade.
Cable hit a low of 1.3020 holding just above the psychologically important 1.3000 level for now. The GBPUSD pair has been under relentless assault from the sellers since yesterday after UK PM May barely survived her Brexit proposal vote in Parliament. The newly watered down UK proposal, hampered by amendments from euro-skeptics in her party, is unlikely to get even a cursory look in Brussels as it calls for the UK to retain control over its trade regulations.
Today’s troubles, however, were decidedly economic based as core inflation fell more than the market forecast—to 1.9% from 2.2% eyed. Despite the fact that inflation fell below the BOE's 2% target, the market remains convinced that the UK central bank will begin to hike rates in August as part of its attempt to begin policy normalization. The futures markets barely budged in a post-news reaction to the numbers, with the probability of a rate hike remaining at 75%.
The hike from the BOE will likely be one and done, but for now that sentiment was enough to hold cable above the 1.3000 figure. Still, whether it is able to hold that barrier will depend on North American flows and the 2nd day of testimony for Fed Chairman Powell.
Mr. Powell’s upbeat view of the US economy helped boost the dollar yesterday and throughout overnight trade as markets have basically decided to “not fight the Fed.” Nevertheless, there is a long history of Fed testimony being slightly altered in 2nd day of hearings and if Mr. Powell shows any oscillation with regard to US economic growth the anti-dollar trade could rally.
For now EURUSD has support at 1.1600 while cable holds above 1.3000. However, if Powell is resolutely hawkish both of those levels could give way as the day proceeds.