Data drives dollar higher

Any early Sterling gains, spurred by referendum opinions, ran out of steam when UK CPI was released at +0.3% (Vs. +0.5% forecast). Cable held on to most of the earlier gains when US CPI was released in line with forecasts, which helped the USD strengthen against other crosses.

On the calendar today, we are expecting some employment data. Forecasts are for the Claimant Count at 4.7k (down from 6.7k last month), the unemployment rate holding firm at 5.1% and average earnings to drop to 1.7% (from 1.8%). All will be closely monitored due to the link to BoE interest rate policy.

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The EUR continues to trade within the recent ranges. The Single Currency held up against ECB’s Praet suggesting the banking sector faces a severe profitability shock. EU trade balance came in at +€28.6bn (Vs +€22.5bn forecast) but this caused little reaction. Eurozone CPI may add something to the interest rate outlook, but chances are the Euro is set for another day of drifting, with movements driven by counterparty news.

Stateside, the Core CPI improved to +0.2% (Vs. +0.1% last month), which was largely due to the recent rise in oil prices. The market welcomes signs of inflationary pressure, as this is what the Fed looking for when considering the timing of their next rate hike, and the USD benefitted accordingly, driving higher against the EUR. A few Fed Governors also helped the greenback when they reference two or three rate hikes this year. Fed’s Kaplan was the most bullish, assuming a June/July hike and then assessing the timing of further movements to follow. The FOMC meeting minutes are due out tonight, which will provide clarity over the latest thoughts and debate, which may provide further USD support.