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The pound is firmer against the euro and dollar amidst market positioning ahead of today's U.S. inflation release and Thursday's ECB event.
GBP/EUR steady at 1.1586 amidst a generally weaker EUR aheaad of Thursday's ECB decision. The risk of a 'dovish' hike is weighing on the single currency. If the ECB raises rates but signals caution and optionality on further hikes, EUR could come under further pressure. Still, a move above 1.16 is remote.
GBP/USD recovers to 1.3390, putting it in the middle of a range occupied since mid-May. USD has pared some of last week's impressive gains amidst stable oil prices. Oil price stability defies the trading of blows between the U.S. and Iran over the past 24 hours. U.S. inflation release is the day's main event. USD strength will be hard to supress: "The USD’s strident reaction to Friday’s stronger-than-expected employment report shows the power of cyclical drivers has returned." - HSBC.
EUR/USD rises to 1.1550, ahead of ECB we have U.S. inflation numbers, where a 0.5% m/m figure is expected that takes the annual rate to 2.9%. Anything above this and USD strengthens. The Fed is priced for a rate hike by year-end, that pricing will rise further if inflation beats expectations. "A high inflation outcome could lead to a new surge in market rates, a stronger dollar and continued pressure on global stock markets." - SEB's Gustav Helgesson.
AUD has steadily weaken as the market judges the RBA's rate hiking cycle is close to the end. Three rate hikes and softening activity are likely to outweigh lingering inflation concerns. GBP/AUD rises through the 100-day moving average on Wednesday at 1.9037, if it can hold the break with a daily close above here, then the outlook shifts to short-term bullish.
NZD is mixed, with AUD weakness proving a headwind. U.S. inflation will be the main driver of the day courtesy of its impact on broader sentiment channels. Mixed news from China overnight: headline PPI inflation increased to 3.9% y/y in May from 2.8%. Subdued domestic demand prevented any meaningful contagion to headline CPI, which remained at 1.2% y/y, slightly below expectations of 1.3%.
CAD is one of the better performers on the screen this morning, trading toward the top of recent ranges against both USD and GBP. "I've misjudged the CAD outlook over the past few weeks but solid employment gains in May support the notion that the Canadian economy is regaining momentum after a soft start to the year" - Shaun Osborne, Scotiabank. "The CAD is certainly undervalued, relative to our equilibrium estimate."