North American Summary and Highlights 22 May
Overview - The USD made modest gains, with the advance under way before the FOMC minutes. GBP was supported by a stronger than expected CPI.
North American session
The USD ended firmer after an afternoon acceleration that was underway before the release of the FOMC minutes. These produced only a modest reaction but front end UST yields did advance as e minutes stated various participants were willing to tighten more if needed. EUR/USD slipped 20 pips to 1.0820 and USD/JPY rose 25 pips to 156.70. AUD/USD was particularly soft, slipping to .6610. USD/CAD tested 1.37.
GBP/USD found support at 1.27 but slipped back again as the USD picked up after recovering to 1.2750. There was little reaction to the announcement that a UK election would take place on July 4.
European morning session
EUR/GBP dropped 20 pips in the European morning following the stronger than expected UK April CPI data. This showed a sharp drop in the headline CPI y/y rate to 2.3% from 3.2% in March, but the market had expected a drop to 2.1%. The core CPI rate dropped to 3.9% from 4.2%, but the market consensus was for a drop to 3.6%. Services inflation held at 6.0% y/y. This was seen as essentially eliminating the possibility of a June rate cut, with the probability of a cut now priced as around 15% from around 50% before the data.
The USD was generally a little firmer. EUR/USD dropped 10 pips to 1.0845 while USD/JPY rose 10 pips to 156.45. The CHF was the worst performer, with USD/CHF rising 20 pips to 0.9135 while EUR/CHF made a new 1 year high at 0.9915.