US Dollar Rises ahead of Fed Policy Decision

USD

The dollar rose against its major peers for the third consecutive day ahead of Federal Open Market Committee interest rate decision today. The greenback gained strength after better-than-expected inflation numbers. The Core Consumer Price Index MoM rose 0.2% versus an expectation of 0.1%, and the Core Consumer Price Index YoY ticked higher to 2.2% from 2.1% previously. The inflation figures increased the chances of an interest rate hike today by the Federal Reserve, and the focus shifted to the Fed Rate projection. The dollar index, DXY, which measures the strength of the greenback against a basket of six currencies rose to the highest level in a week. USD/JPY extended the gains of yesterday towards early Asian session, where the pair traded at a three-week high. The pair is having support from the divergence in the monetary policy and economic outlook of the two countries. Moreover, the shift in investor’s risk sentiment is weighing on the Safe-Haven Yen.

EUR

The Euro weakened against the United States dollar after soft economic sentiment report. The German ZEW economic Sentiment dropped to the lowest level since September 2012. Moreover, the Eurozone ZEW economic sentiment fell below zero level for the first time in almost two years. The economic sentiment figures confirmed the negative effect of the Italian political crisis and economic slowdown on investor’s sentiment. The European Central Bank meeting tomorrow remains in focus as investors await any tapering signal. The industrial production for April is due today.

GBP

The British pound ended the day almost unchanged against the US dollar as investors wait for the inflation numbers today. The job report from the United Kingdom was released yesterday showing a drop of 7.7 in the claimant count and unemployment rate steady at 4.2%, the lowest level in more than 40 years. However, the main focus was on the Average Earnings Index that came out as expected at 2.5%, down from 2.6% prior. A better-than-expected reading in today's inflationary numbers will raise the chances of a rate hike by the Bank of England soon.

Gold

Gold prices closed lower for the first time in a week post the better-than-expected inflation numbers from the United States. The rise in the Consumer Price Index almost guaranteed a rate hike in today’s decision, which added pressure to the precious metal. Moreover, the outcome of the summit between the United States and North Korea eased the geopolitical tensions. Gold is still caught in a tight trading range and posting the lowest Average True Range in years.

Oil

Oil prices fell due to the rise in US crude oil stock reported by the American Petroleum Institute (API), and the expectations of a rise in the output of OPEC and Russia. OPEC released its monthly report yesterday, where they forecasted the global oil demand to rise by 1.65 million barrel per day in 2018. The report confirmed that the total OPEC output rose in May, and the rise in the production from Iraq, Saudi Arabia, and Algeria was able to offset the drop in production from Nigeria, Venezuela, and Libya. On the other hand, the American Petroleum Institute reported that the US crude oil inventories rose by 0.833 million barrels to 433.7 million barrels last week. The official number from the Energy Information Administration (EIA) is due today.

Major Economic Events

GMT Country Event Expectation Previous
8:30 UK CPI (YoY) (May) 2.4% 2.4%
8:30 UK CPI (MoM) (May) 0.4% 0.4%
9:00 EU Industrial Production (MoM) (Apr) -0.5% 0.5%
12:30 US Core PPI (MoM) (May) 0.2% 0.2%
12:30 US PPI (MoM) (May) 0.3% 0.1%
14:30 US Crude Oil Inventories -2.744 2.072
18:00 US Fed Interest Rate Decision 2.00% 1.75%
18:30 US FOMC Press Conference

Disclaimer
The prices and news mentioned in this outlook are absolutely no guarantee of future market performance and do not represent the view of ICM Capital Limited. Financial markets can move in either direction causing profits to be made or complete losses to be incurred by the trader. Each trader must decide for themselves what their risk appetite is and ensure that correct risk management procedures are in place before placing any trades.

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