Daily FX Update, 17 June 2015

OVERNIGHT MARKET UPDATE:

·         US housing starts for May fell 11.1% m/m, following an upwardly revised 22.1% rise in April. It is a very volatile series and despite the drop in May, the trend remains clearly up. In contrast, building permits gained 11.8% in May to reach 1.28 million, a new recovery high, indicating firmer housing activity ahead and complimenting the 5 point rise in the June NAHB index to 59.0.     

·         The euro area June ZEW expectations survey fell 7.5 points to 53.7 and the German ZEW indices also fell back. The press release claimed that “external factors are reducing the scope for further improvement of Germany’s good economic situation. These include, in particular, the ongoing uncertainty over Greece’s future”. Other data released overnight showed euro area employment rose by just 0.1% in Q1, leaving the annual growth rate at a slow 0.8%. 

·         UK CPI inched back into positive territory in May (+0.1% y/y vs -0.1% y/y in April), easing deflation fears. That should provide the BoE with comfort that inflation will recover later this year.

·         In the currency markets, GBP shrugged off attempts to weaken the currency after a small core CPI miss. EUR was volatile but remains within ranges, ignoring deteriorating Greek talks.      

·         US 10-year yields declined to 2.31% as Greece signalled it won’t make further concessions to unlock bailout funds needed to avoid defaulting.             

·         US stocks advanced on speculation the Federal Reserve won’t rush to raise rates tonight amid mixed economic data and uncertainty over Greece’s future in the euro.

·         Brent prices suffered the most as concerns over further growth in supply continued to weigh on the market. In the US, WTI prices were only marginally down as investors turned their focus to tomorrow’s EIA report.                       

Gold ended lower as the dollar strengthened against a basket of major currencies and with investors opting for the riskier equity assets, after the US Fed began its highly anticipated two-day policy meet.