Markets
The US Treasury rise curve rose for the second session in a row. Markets reversed their post-CPI reaction on Tuesday after that The June PPI report is more moderate. Headline producer price inflation fell by 0.3% month-on-month and slowed from 6% year-on-year to 5.5%. Core Producer Price Index rose 0.2% m/m and rose from 4.6% y/y to 4.7%. Both were below consensus and pressured July rate hike bets towards 0%. Remember, it temporarily reached 50% at the beginning of the week. Fed Governor Cook He stated that upside inflation risks are the priority now as all indicators point to a stable labor market. It is ready to act in the absence of signs of shrinkage (soon). Deprived of interest rate support, the dollar lost further strength with EUR/USD closing at 1.1463 from the start at 1.1420. A break above 1.1481/1.15 would make the short-term technical picture more neutral again rather than USD positive. Today’s environmental calendar contains US retail sales and more Fed speeches, but their market-moving potential is low after repositioning in the past two days. US President Trump delivers a prime-time address to the nation Which serves as an allowance for trading. He is expected to focus on elections and voting machines, but he is known for going off-script and tackling a wide range of topics. Energy prices are still high While the United States continues to launch Iranian strikes.
The British pound did well yesterday. EUR/GBP fell below the big 0.85 figure for the first time since June last year and tested technical support at 0.8468 (62% retracement of the Dec 24-November 25 move). Missing this mark leaves a little intermediate support towards a full retracement (0.8223). In the best case, we are looking at 0.8372 (76% retracement level) and 0.8330 (ultimate target for a multiple top formation with a neckline at 0.86). GBP/USD crossed the 1.34 level and rose to its best close (1.3540) since early May. Markets were relieved by an article in the Financial Times indicating that incoming British Prime Minister Burnham had chosen current Interior Minister Mahmoud to be the next chancellor. Mahmoud is seen as more hawkish than Ed Miliband, Labour’s preferred left-wing candidate for the position. With little ability to implement expansionary fiscal policy, the market’s focus will now be on delivery in the autumn budget. On the UK data front, monthly labor market and inflation figures are due out next week. They will help shape expectations for the reaction function of the Bank of England. UK financial markets are currently ruling out a rate hike by the November meeting. Bank of England Governor Bailey, in a speech earlier this week, maintained a more balanced approach (than some of his colleagues), prioritizing support for growth over an aggressive monetary policy response in light of inflation risks.
News and opinions
South Korea’s central bank raised interest rates from 2.5% to 2.75% today. The first increase in three years comes at the conclusion of increasingly tough rhetoric over the past two months It won’t be the last. Bank Governor Shin Hyun-sung only last week before Parliament warned of the need to raise interest rates at the right time. Above-target inflation, economic boom led by artificial intelligence and semiconductors, weak exchange rate, and increasing risks to financial stability It has finally culminated in today’s move. “It will clearly be necessary to continue a consistent policy stance with further rate hikes, and the Governing Council will determine the timing and pace of additional base rate increases while assessing the extent of inflationary pressures, the trend of improvement in the domestic economy, and financial stability.” reads the statement. The South Korean benefited from the strong language and rose to its best levels since mid-May around 1480.6 US dollars/Korean won.
The US administration imposes 25% customs duties on Brazil as of July 22 Import tariffs This will not affect US imports of coffee, beef and some ethanol products. It is the result of an investigation conducted under Section 301 of the Trade Act 1974 which “It found a number of Brazil’s practices to be unreasonable and discriminatory, limiting the competitive position of American farmers, workers, innovators and exporters.” The United States is Brazil’s second-largest trading partner and one of the few major economies with which it runs a trade deficit. Last year, US President Trump imposed 50% tariffs on a wide range of products to pressure the Brazilian authorities regarding the trial of former President Bolsonaro. Most of them were withdrawn after negotiations between current President Lula and Trump. New presidential elections are scheduled for next October, and Lula’s main competitor is Bolsonaro’s son.
