CABLE RALLIES AFTER STRONGER THAN EXPECTED INFLATION DATA
The British pound rose against the dollar on Tuesday, while the euro steadied, as investors digested a deluge of economic data through the European session.
British consumer prices strengthened more than expected in May, underlying the Bank of England’s forecast that inflation will overshoot the official target for the foreseeable future. The consumer price index rose 0.3% in May and 2.9% annually, the Office for National Statistics reported Tuesday. Analysts in a median estimate forecast CPI inflation to rise 2.7% annually.
A measure of producer inflation known as the producer price index (PPI) rose 2.8% annually, which was a bit weaker than the 2.9% expected.
Meanwhile, retail prices surged 3.7% from a year ago, which was higher than the 3.5% rate forecast by economists.
Eurozone investor confidence rose more than expected in June, although the same couldn’t be said about Germany, the region’s largest and most influential economy. The ZEW Eurozone economic sentiment index strengthened to 36.6 in June from 35.1 the previous month. Analysts in a median estimate called for a reading of 47.2.
Meanwhile, the German economic sentiment indicator weakened unexpectedly to 18.6 from 20.6. Analysts forecast a reading of 21.5 for the month.
The Federal Reserve also began its two-day policy meeting on Tuesday. An official rate statement is expected the following afternoon alongside revised economic projections covering GDP, unemployment, and inflation. Traders are more or less certain that a rate hike will materialize on Wednesday, according to the latest Fed Fund futures prices.
The US dollar index, a weighted average of the greenback against a basket of world currencies, was last down 0.1% at 97.02. Even amid rate hike bets, the US dollar has been unable to claw back sharp losses incurred over the past three months.
The euro held steady through the overnight session, as investors awaited more pressing fundamental cues. The common currency has been rangebound in recent days after touching new lows through the mid-1.11 range. The technical picture for the EUR/USD remains neutral to bearish over the short-term. Immediate resistance is likely to converge on the 1.1220 region. On the opposite side of the spectrum, immediate support is located at the 1.1160 region.
Inflation data pushed the British pound higher on Tuesday, with the GBP/USD exchange rate touching a session high of 1.2740. The pair was last up nearly half a percent to trade in the 1.2730 range. Immediate resistance is located at 12 June high of 1.2771. On the opposite side of the ledger, support is seen at the 9 June low of 1.2632.
Oil prices continued to recover through overnight trading, although gains were limited by concerns of a persistent supply/demand imbalance in the market. WTI’s recent gains suggest a return to the May swing low is out of the picture – for now. However, any future strength will depend largely on the supply/demand outlook. This makes crude inventory data especially critical.