Markets Steady Ahead Of Final Push On Debt Deal
GBP: Hard to fight the aggressive BoE pricing
Money markets now price 100bp of Bank of England tightening by November. This would put the Bank Rate at 5.50%. ING Bank's view is that such an amount of tightening is highly unlikely and that the usually reticent Bank of England may try and verbally push back against it. However, UK data is doing the most of the talking and it will probably be the jobs/wages data (13 June) or the May CPI data (21 June) which will be the key determinant on whether the market reins in aggressive tightening expectations. Until then, GBP/EUR resistance level is at 1.1560 with the next resistance level at 1.1627.
No major data.
EUR: Can China come to the euro's rescue?
EUR/USD has quietly slipped below support at 1.0700/1.0720 and may be gently making its way to the March lows at 1.0515/0530. According to ING Bank, they think EUR/USD is relatively cheap given the massive reversal in energy prices over the last year and that, in time, the 1.05/1.07 area will come to be seen as a summer base. Helping that proposition would be some kind of recovery in China. The release of the China Beige Book has shown some recovery in the China manufacturing sector in May. Official May Chinese PMI figures are released later this week. A bounce back here, helping to reverse the recent run-up in USD/CNH, could provide the Euro with some support. For today, the eurozone focus will be on the release of industrial and consumer confidence figures for May. Consensus expects some further deterioration here and if so this should keep EUR/USD on the soft side. We will also hear from a raft of ECB speakers today. Expect more hawkish rhetoric especially in advance of the May eurozone CPI data on Thursday. Consensus expects core eurozone CPI to edge lower to 5.5% year-on-year in May. Another upside surprise here – feeding the sticky inflation narrative – warns that investors could return to pricing a 4.00% ECB deposit rate.
Data/Speakers: See above.
Dollar drifts as traders weigh rocky path for US debt ceiling deal
The U.S. Dollar eased in today's early morning trade against a basket of major currencies but did not drift far from a two-month peak, after a deal over the U.S. debt ceiling lifted risk sentiment, although the agreement could face a rocky path through Congress. The Dollar index , which measures the U.S. currency against six major peers, fell 0.02% to 104.28, not far from the two-month high of 104.42 it touched on Friday. The index is set to end the month with a gain of 2.5%. A handful of hard-right Republican lawmakers said on Monday they would oppose a deal to raise the United States' $31.4 trillion debt ceiling. Last Friday's US data set made the firm case for one additional 25bp Fed hike – now fully priced by the time of the 26 July meeting. Money markets price a 63% chance of that hike coming earlier at the 14 June meeting – a meeting which will likely see the Fed have to raise its inflation forecasts. The default view, therefore, seems to be that the Dollar can hold its recent gains at least into that June meeting. That is unless US price and activity data start to fall away sharply.
Data 15.00: CB Consumer Confidence expected 99.1 from 101.3.