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FX

Fed, ECB and BoE Emphasize Caution and Patience

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Fed, ECB and BoE emphasize on caution and patience                      

  • USD traded higher across the board overnight with 3 developments standing out – (1) A relief rally in USD as Trump sides with free-trade proponent Mnuchin though still criticizing China and Economic Advisor Hassett suggesting the US will get concessions from China and EU on tariffs. (2) A new US tax plan possibly coming in August with House Ways and Means Committee Chairman Kevin Brady focused on permanent tax cuts and retirement savings. (3) Fed President Bostic speaking with cautious optimism, saying the Fed may be getting close to the lower part of most plausible estimates of the neutral rate.

 

  • Two ECB speakers overnight emphasized patience on the policy outlook – (1) Coeure saying the ECB expects rates to remain unchanged through summer 2019 and notes for the first time they are communicating about future policy rates with a date, even if it’s only indicative. More importantly, Coeure indicates QE reinvestments will be about EUR15bn/month in 2019. (2) New Vice President Guindos reiterates Draghi’s sentiment regarding “the three P’s” – patience, persistence and prudence while further talking about downside risks stemming from the ongoing trade dispute with the US.

 

  • Mixed comments from the BoE with outgoing member McCafferty delivering a hawkish monetary policy speech that suggests he will be voting for a hike again in August but incoming member Haskel seeing risks if the BoE raises rates too quickly.

 

 

GBP: UK inflation expectations rising due to higher oil prices but BoE willing to look through that for now

  • In the UK, the Citigroup/YouGov Inflation Tracker shows rising UK inflation expectations in June due to oil price gains that sees short-term expectations up 0.1pp to 2.6%, marginally above the BoE’s (2.4%) and Citi’s (2.5%) forecasts but the second successive rise in this component. Long-term expectations are also up from 3.2% to 3.3% and above the series’ average since 2005 for the first time since December 2017. Even so, mixed comments from the BoE overnight suggest increased caution about raising rates too quickly.

 

 

Commodity Bloc: CAD, NZD retreat ahead of key central bank events (BoC, RBNZ)

  • The metals tariff fallout continues with Canada as it confirms plans to proceed with counter tariffs against the US this upcoming July 1, but adds it is also considering a combination of quotas and tariffs aimed at certain countries including China to limit steel dumping. According to Bloomberg reports, the announcement could come as early as next week, though the government has not finalized its plans. The comments come ahead of BoC Governor Poloz’s hotly anticipated speech tonight which may give guidance on the prospects for a July rate hike and the BoC’s Canadian Business Outlook survey on Friday.

 

  • Meanwhile, NZDUSD is on the defensive ahead of tomorrow’s RBNZ meeting and following the NZ government letter to the RBNZ governor wanting to see more monetary and fiscal coordination with the NZ Treasury. Markets anticipate a dovish RBNZ statement tomorrow as a result.

 

 

This is an extract from the Daily Currency Update, dated 27th June 2018. Please approach a Citigold Relationship Manager if you would like more information.

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