Daily currency report
Overview
There was a subdued atmosphere across the trading floors as the focus continues to fall on the Federal Reserve’s latest monetary policy announcement, due for release. Caution is driving position-taking with the US dollar still falling under pressure against its major rivals due to concerns over Ben Bernanke’s willingness to tighten policy before the end of the year; a move that would be considered too soon for many economists’ liking.
In the UK, inflation figures for May are expected to show a minor increase of 0.1 per cent which would be down on the previous month’s figure of 0.2 per cent. However, the annualised figure is expected to show an uptick to 2.6 per cent from 2.4 per cent and if proved correct, could be sterling supportive. This may provide the pound with one final boost before the Bank of England minutes are released; a publication which may show policymakers to be more supportive towards quantitative easing than before.
Elsewhere, German ZEW economic sentiment data for June is due, a data release which has a history of causing plenty of movement if it fails to meet expectations. The index is expected to show Europe’s largest economy in a better light.
Sterling
Forecasts have predicted an increase of 0.1 per cent for May, a slight drop on the previous month’s 0.2 per cent level. The annualised figure is expected to move above and beyond the Bank of England’s target level from 2.4 per cent to 2.6 per cent; such a move could set-off a few alarm bells and encourage policymakers away from talks of any more quantitative easing.
US dollar
The US is preparing itself for a crucial central bank policy announcement with investors across the globe keeping their fingers crossed for a statement of reassurance in order to help maintain a level of calm across stock markets. Ben Bernanke will face the cameras following the announcement and may face his toughest test yet if he is left to justify an early pull-back on their current monetary easing programme; a decision that wouldn’t go down well across global financial markets.
Euro
The single currency continues to move within very specific ranges against other majors with many gearing their positions with caution ahead of the Federal Reserve’s latest monetary policy announcement. German ZEW sentiment figures will be released a data event key to the euro’s short-term prospects.