- It has been a quiet start to the week with both the UK and US out for public holidays yesterday. Markets return today with the US dollar index a touch weaker with traders seeking fresh direction as month end related flows kick-in over the next few days. The single currency remains solid against the greenback hovering below the psychological 1.09 resistance area as markets look forward to a further update on inflation in the euro area later this week. Flash CPI inflation data for May is released on Friday and will likely show a slight uptick from 2.4% to 2.5%. Any small increase is unlikely to stop the ECB from cutting rates in June, however markets will be monitoring inflation data in the coming months to see how fast rates can be reduced in the second half of the year.
- Inflation remains an ongoing concern for the Federal Reserve and Friday sees the release of the central banks preferred inflation guide, the core PCE deflator. The Fed is in a real quandary – it wants to cut rates, but recent data and market conditions make that increasingly difficult. Fed officials similarly do not want to hike rates again as they want to avoid a recession. Further clues on the outlook for the US economy will be released in the coming days as we await the Consumer Confidence report later today and the second print of Q1 GDP data which is out on Thursday.
- It is a very quiet week for UK data, with nothing significant on the docket in the coming days. GBPUSD remains well supported trading in the high 1.27’s and looking to test the psychological 1.28 on any greenback weakness.
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