All Eyes on US Inflation

The US inflation data is due today, as the Fed begins its two day policy meeting. Expectations are rather soft – which make them harder to beat. The US headline inflation is expected to have eased from 4.9% to 4.1% in May, core inflation – excluding food and energy – is expected to have soften from 5.5% to 5.3%. On a monthly basis, core CPI is expected to have risen at 0.4%, same speed as last month, as price increases in services and rents remain sticky.

US May CPI Inflation The Main Dish Today

US May CPI inflation is the main dish today. Consensus expects a 0.1% M/M headline increase with the Y/Y-figure declining further from 4.9% to 4.1% mainly driven by energy and base effects. These will continue to play a role in June as well. Core inflation is expected to rise by 0.4% M/M and 5.2% Y/Y (from 5.5% Y/Y).

China Cuts Rates

The People's Bank of China (PBOC) overnight cut the repo rate by 10bp from 1.9% to 2.0. The CNH weakened in response and Chinese equities and metals prices saw a small lift adding to gains seen over the past two weeks. While monetary easing has been expected, the repo rate cut came slightly earlier than most expected as repo rate changes normally coincide with changes in the rate on the Medium Lending Facility, which will be set on Thursday.

Aussie Edges Higher Despite Lukewarm Confidence Data, US Inflation Next

The Australian dollar remains on a roll and is trading at 0.6775, up 0.35% on the day. The Aussie has been a tear in June, surging 4.15% against the US dollar.

BTCUSD Analysis: Clients Fleeing Binance

However, the price of bitcoin is under pressure. The BTC/USD rate has broken through the ascending channel, tested it (as we indicated), and is near an important support around USD 25k. It could be breached if there is a decision to freeze Binance.US funds, or news about the US economy that affects the value of the US dollar.

US: Inflation Continues to Ease in May, But Lingering Price Gains Will Keep FOMC Vigilant  

The Consumer Price Index (CPI) increased 0.1% month-on-month (m/m) in May, a tick below the consensus forecast (+0.2% m/m). The 12-month change slipped to 4.0% – down from 4.9% in April`.

GBP/USD Rebounds on Strong UK Job Numbers, US Inflation Drops

The UK labour market remains robust, and today’s employment numbers were higher than expected.  The economy created 250,000 jobs, up from 182,000 crushing the consensus of 162,000. The unemployment rate dipped to 3.8%, down from 4.0% and below the consensus of 4.0%. As well, average earnings including bonuses jumped to 6.5%, above 6.1%, which was also the consensus.

BoJ Unlikely to Tighten Policy, Yen Braces for Another Hit

The Bank of Japan will announce its rate decision early on Friday. Even though the economic data pulse has improved significantly, there isn't much scope for any policy changes, because most officials believe this strength won't last long. The yen could suffer a minor blow in case the BoJ does nothing, although the currency's overall trajectory will also depend on how global risk sentiment evolves. 

US Core Inflation Could Cause Fed's Concern

US consumer inflation slowed to 4.0% y/y in May from 4.9% y/y. The monthly gain was 0.1%. In both cases, the data was 0.1 percentage point weaker than expected, marking a slightly faster decline in the inflation problem than expected.

Must BoE Now Consider Larger Rate Hikes? Fed on Course to Pause? Oil Bounces Back

A rate hike at the next meeting is now unavoidable – assuming it wasn't already – but a 50 basis point increase could suggest the BoE is throwing in the towel in trying to deliver 2% inflation and a soft landing for the economy. And the withdrawal of any votes for a pause will be equally important as the scale of the hike – we've seen two for four consecutive meetings – ​ and would be another strong sign that the BoE is very concerned.