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Dollar lower after tepid inflation data and FOMC still weighs

USD

The dollar weakened on Thursday following the release of tepid inflation data and as the previous day’s FOMC meeting continued to encourage more selling after the central bank adopted a more doveish stance.

CPI figures mostly missed the mark, with the headline CPI coming out flat at 0.0% yoy in May, when it had been estimated to give a 0.1% result. This was, however, an improvement from a year ago when it was at -0.2%.

On a month-on-month basis headline CPI rose by 0.4% from 0.1% in the previous month of April. But this was still below the expected 0.5% investors had been waiting for.

Core CPI meanwhile, came out a point lower at 1.7% yoy when it had been estimated to remain at 1.8% as previously.

Core CPI on a mom basis slowed down to 0.1% from a previous 0.3% result when it had been expected to drop only a basis point to 0.2%.

Other data saw Initial Jobless Claims declining to 267k, which was lower than the 275k expected. Continuing Claims – whilst falling to 2222k from 2272k failed to hit the 2210k forecast.

EUR

The euro made volatile swings up and down as conflicting news stories leaked out of a crunch meeting of Euro-zone Finance Ministers in Luxembourg, where top of the agenda was fixing Greece’s finances.

Officials from major creditor institutions were also present at the meeting where it was hoped some kind of accord might be hammered out.

The euro spiked higher briefly on the news that the euro-group and creditors had presented Greece with a proposal to extend the current bailout scheme until December, and offering a payment of 10bn euros set aside to recapitalise Greek banks before it was frozen during the recent negotiation impasse. This money could be used by Greece to pay the IMF its 1.6bn due at the end of the month. However, the single currency gave back its gains and spiked down not long after these reports – which came from German paper Die Zeit who got them from anonymous unofficial sources – were dismissed by people present at the meeting including Angela Merkel.

Not long after Yannis Varoufakis presented the euro-group with his own set of proposals, which included the idea that the European Stability Mechanism (ESM) should buy 6.7bn of the debt that Greece owes the ECB, and other debt write downs possibly as well, but these did not seem to lead to any kind of deal, and the euro began to weaken again after.

The latest news is that it now appears that no deal was struck at all.

GBP

The pound rose on Thursday after Retail Sales figures showed robust growth in May.

On a yoy basis Retail Sales rose by 4.6% – beating expectations of a 4.3% increase and retaining the same level as the previous year.

Retail Sales including Auto Fuel came out at 4.6% in line with expectations and the same as May 2014.

Both showed higher-than-expected growth of 0.2%, although this was lower than the previous month which showed a 0.8% rise for headline and 0.9% for Ex Auto Fuel.

The robust data continued the trend for positive economic news in the U.K. On Wednesday the pound strengthened after data showed a higher-than-expected rise in Average Earnings, of 2.7%, which boosted the outlook for the monetary policy, leading to increased speculation of an early rate hike. .

JPY

On a quiet trading morning the yen climbed 33 points following Janet Yellen’s press conference Wednesday evening and the return of the yen to safe haven status as tensions over Greece grew and affected markets. The yen traded at 123.03 per dollar in the second half of the New York session.

A preview of the BOJ monetary policy committee suggests it is unlikely any new stimulus measures will be announced any time soon. Earlier in the year the bank was widely expected to pump more stimulus into the economy, however in a recent Bloomberg survey only 49% of economists expect any further easing against 61% only a month ago.

The positive GDP figures are considered the main reason for this, growing an annualised 2.4% qoq beating an expected annualised growth rate of 1.6%.

Wage inflation appears to be heading higher as businesses become more confident about Japan’s economic outlook and a low yen is supporting exporters.

However the Japanese economy is not of the woods yet and its too easy to rule out further easing just yet. Core inflation is only 0.3% a long way from the government’s target and there are only tentative signs of core price pressures. Retail sales are growing but it is early days and soft import numbers highlight the weakness of domestic demand.

Overall therefore economists anticipate the BOJ meeting to largely be a non-event as they expect the bank to maintain the status quo.

USD

The dollar weakened on Thursday following the release of tepid inflation data and as the previous day’s FOMC meeting continued to encourage more selling after the central bank adopted a more doveish stance.

CPI figures mostly missed the mark, with the headline CPI coming out flat at 0.0% yoy in May, when it had been estimated to give a 0.1% result. This was, however, an improvement from a year ago when it was at -0.2%.

On a month-on-month basis headline CPI rose by 0.4% from 0.1% in the previous month of April. But this was still below the expected 0.5% investors had been waiting for.

Core CPI meanwhile, came out a point lower at 1.7% yoy when it had been estimated to remain at 1.8% as previously.

Core CPI on a mom basis slowed down to 0.1% from a previous 0.3% result when it had been expected to drop only a basis point to 0.2%.

Other data saw Initial Jobless Claims declining to 267k, which was lower than the 275k expected. Continuing Claims – whilst falling to 2222k from 2272k failed to hit the 2210k forecast.

EUR

The euro made volatile swings up and down as conflicting news stories leaked out of a crunch meeting of Euro-zone Finance Ministers in Luxembourg, where top of the agenda was fixing Greece’s finances.

Officials from major creditor institutions were also present at the meeting where it was hoped some kind of accord might be hammered out.

The euro spiked higher briefly on the news that the euro-group and creditors had presented Greece with a proposal to extend the current bailout scheme until December, and offering a payment of 10bn euros set aside to recapitalise Greek banks before it was frozen during the recent negotiation impasse. This money could be used by Greece to pay the IMF its 1.6bn due at the end of the month. However, the single currency gave back its gains and spiked down not long after these reports – which came from German paper Die Zeit who got them from anonymous unofficial sources – were dismissed by people present at the meeting including Angela Merkel.

Not long after Yannis Varoufakis presented the euro-group with his own set of proposals, which included the idea that the European Stability Mechanism (ESM) should buy 6.7bn of the debt that Greece owes the ECB, and other debt write downs possibly as well, but these did not seem to lead to any kind of deal, and the euro began to weaken again after.

The latest news is that it now appears that no deal was struck at all.

GBP

The pound rose on Thursday after Retail Sales figures showed robust growth in May.

On a yoy basis Retail Sales rose by 4.6% – beating expectations of a 4.3% increase and retaining the same level as the previous year.

Retail Sales including Auto Fuel came out at 4.6% in line with expectations and the same as May 2014.

Both showed higher-than-expected growth of 0.2%, although this was lower than the previous month which showed a 0.8% rise for headline and 0.9% for Ex Auto Fuel.

The robust data continued the trend for positive economic news in the U.K. On Wednesday the pound strengthened after data showed a higher-than-expected rise in Average Earnings, of 2.7%, which boosted the outlook for the monetary policy, leading to increased speculation of an early rate hike. .

JPY

On a quiet trading morning the yen climbed 33 points following Janet Yellen’s press conference Wednesday evening and the return of the yen to safe haven status as tensions over Greece grew and affected markets. The yen traded at 123.03 per dollar in the second half of the New York session.

A preview of the BOJ monetary policy committee suggests it is unlikely any new stimulus measures will be announced any time soon. Earlier in the year the bank was widely expected to pump more stimulus into the economy, however in a recent Bloomberg survey only 49% of economists expect any further easing against 61% only a month ago.

The positive GDP figures are considered the main reason for this, growing an annualised 2.4% qoq beating an expected annualised growth rate of 1.6%.

Wage inflation appears to be heading higher as businesses become more confident about Japan’s economic outlook and a low yen is supporting exporters.

However the Japanese economy is not of the woods yet and its too easy to rule out further easing just yet. Core inflation is only 0.3% a long way from the government’s target and there are only tentative signs of core price pressures. Retail sales are growing but it is early days and soft import numbers highlight the weakness of domestic demand.

Overall therefore economists anticipate the BOJ meeting to largely be a non-event as they expect the bank to maintain the status quo.



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