Daily FX Update, 19 June 2015

OVERNIGHT MARKET UPDATE:

·         US headline CPI data increased by a seasonally adjusted 0.4% in May, while the core inflation increased at 0.1% m/m. The headline number was boosted by a sharp rise in gasoline prices. The annualised core inflation of 1.7% (annualised) suggests that the impacts of the stronger USD and earlier decline in oil prices are being nullified by reduced spare capacity in the economy. 

·         The headline activity index in the US Philadelphia Fed survey increased to 15.2 in June, the highest level since December 2014. The increase by the headline partly reflected a pickup in demand for manufactured goods, with new orders index jumped.

·         US initial jobless claims declined to 267k from 279k last week. The four week moving average eased marginally to 277k and remains around the 15-year low recorded four weeks ago.   

·         UK retail sales rose +0.2% m/m on both a headline and core basis against markets’ expectations of a 0.2% m/m decline. With real average earnings and the labour market tightening in the UK, the outlook for private consumption growth remains encouraging.

·         In the currency markets, USD sold off after core CPI dropped a tenth in May, while Philadelphia Fed strength undid some of the decline. GBP hit seven-month highs after UK retail sales strength.              

·         US Treasuries sold off across the curve, partly reversing their post-FOMC moves, despite the marginally softer-than-expected CPI report.

·         US indices followed the lead from Europe, rising early in the session, but largely tracked sideways thereafter.  

·         Crude oil prices closed higher, leaving prices at levels similar to a week ago. A weaker USD provided some support. WTI prices outperformed Brent despite US EIA data showing the first build in Cushing, Oklahoma inventories in two months.                         

Gold rose back above US$1,200 an ounce, leading a rally across most precious metals after the Fed indicated that US interest rates may rise more slowly than expected.