Pound at Risk on UK CPI, US Dollar to Rise on Hawkish Fed

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TALKING POINTS – UK CPI, BRITISH POUND, FOMC, US DOLLAR, NAFTA, CANADIAN DOLLAR

UK CPI data headlines the economic calendar in European trading hours. The headline inflation rate is expected to print at 2.4 percent on-year in May, unchanged from the prior month. Leading PMI surveys argue for softer price growth however, echoing a string of recent disappointments on UK data outcomes relative to consensus forecasts. Such a result is likely to weigh on the British Pound.

The spotlight then turns to the FOMC policy announcement. A rate hike is widely expected, making the accompanying forward guidance the primary market mover. Activity surveys point to brisk pickup in growth and swelling inflationary pressure in the first two months of the second quarter, suggesting baseline forecasts as well as the tone of official comments might lean hawkish. That bodes well for the US Dollar.

The markets may be pre-positioning for just such an outcome. The greenback traded broadly higher against its G10 FX counterparts in Asia Pacific trade. The anti-risk Japanese Yen and Swiss Franc bore the brunt of its advance as S&P 500 futures edged upward, signaling an uptick in risk appetite. APAC shares traded lower in what looked like give-back of yesterday’s gains after the impact of the Trump/Kim summit fizzled.

The Canadian Dollar likewise fell as markets worried about NAFTA renegotiation prospects. This follows a contentious G7 leaders’ summit over the weekend that devolved into a series of insults lobbed at Canadian Prime Minister Justin Trudeau by White House officials including President Trump. The Mexican Peso fell in tandem. The British Pound corrected lower after yesterday’s Brexit-inspired gains.

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Pound at Risk on UK CPI, US Dollar to Rise on Hawkish Fed

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— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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