BoE’s Ramsden pledges inflation battle.

Fed Governor Waller stated that he would support a further 75 basis-point rate hike this month but could lead towards a larger hike if retail sales and housing data comes in materially stronger than expected.

He also commented that the central bank does not want to overdo rate hikes and that 75 basis points would take rates to neutral. Although he expressed concerns over inflation data, the rhetoric was less hawkish than expected.

Producer prices increased 1.1% for June, above expectations of 0.8% with the year-on-year increase increasing to 11.3% from 10.9%.

Underlying prices increased 8.2% over the year from 8.5% previously.

Waller’s comments had a notable impact and, following his comments, there was a scaling back of speculation that the Federal Reserve could sanction a 100 basis-point rate hike at the July policy meeting. St Louis head Bullard also called for a 75-basis point hike. The US 2-year yield retreated to near 3.10% from highs above 3.25%.

There were further concerns over Italian political outlook as Prime Minister Draghi offered to resign after a confidence vote.

EUR/USD finally slumped below 1.0000 on Thursday for fresh 19-year lows around 0.9960. The pair did, however, manage to recover back above parity as the dollar eased slightly.

Bank of England Deputy Governor Ramsden stated that the central bank will not let inflation get out of control and interest rates were very likely to have to go up further to stop a repeat of persistently high inflation that was seen in the 1970s and 1980s.

China reported a second-quarter GDP decline of 2.6% with the year-on-year increase at 0.4% compared with expectations of 1.5%.

The retail sales and unemployment releases were, however, stronger than expected which provided some relief.

Fears over the Italian political situation and a spike in Italian bond yields undermined Euro support on Thursday. The EU Commission lowered the 2023 EU GDP growth forecast to 1.5% from 2.3% previously while inflation forecasts were revised higher.  Euro selling pressure finally triggered a EUR/USD slide to below party with stops taking the pair to fresh 19-year lows around 0.9960.

Euro money markets moved higher which provided some protection. The dollar retreated from 19-year highs as US yields dipped lower following Waller’s comments. EUR/USD managed to regain the 1.0000 level and traded around 1.0030. USD/JPY retreated from fresh 23-year highs at 139.35, but held around 139.00.

The Swiss franc was unable to extend gains amid higher global yields and USD/CHF settled around 0.9825.

Sterling was unable to gain any traction amid fragile risk conditions. GBP/USD dived to fresh 2-year lows at 1.1760 before a recovery back above 1.1800. GBP/EUR dipped to the 1.1800 area.

The Canadian dollar dipped sharply amid fears over domestic growth after the aggressive BoC rate hike.  USD/CAD surged to highs at 1.3225 before a retreat to just above 1.3100. AUD/USD recovered to 0.6750 from fresh 2-year lows near 0.6680.

Economic Calendar

Expected Previous
09:00 Italy - CPI (Y/Y)(JUN) 6.90% 6.90%
09:00 Italy - CPI (M/M)(JUN) 0.90% 1.20%
10:00 Euro-Zone Trade Balance(MAY) -32.4B
13:30 USD Core Retail Sales (M/M)(JUN) 0.60% 0.50%
13:30 USD Export Price Index (M/M)(JUN) 1.3 2.8
13:30 USD Import Price Index (M/M)(JUN) 0.70% 0.60%
13:30 NY Empire State Manufacturing Index(JUN) -0.35 -1.2
13:30 USD Retail Sales (M/M)(JUN) 0.80% -0.30%
13:30 CAD Foreign Securities Purchase(MAY) 22.23B
13:30 CAD Wholesale Sales (M/M)(MAY) 0.20% -0.50%
14:15 USD Industrial Production(JUN) 0.20% 0.10%
14:15 USD Industrial Production (Y/Y)(JUN 01) 5.43%
15:00 USD Business Inventories(MAY) 1.20%
15:00 USD Michigan Consumer Sentiment(JUL 01) 58 50
15:00 Retail Inventories Ex. Auto (MAY) 0.80%

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.