Market Drivers – US Session – 13/06/2023

Mohamed Abdelhamid 14 June, 2023 3:55 am Forex Market, Market Update

Following the US CPI print, traders and investors as well as analysts turned their attention to the FOMC meeting and the looming policy decision. Chair Powell’s press conference and the latest Summary of Economic Projections are expected to signal that one more rate hike is still on the table.

Before the Fed’s decision, New Zealand will report Q1 Current Account and the UK Industrial Production data. Later, before the monetary policy decision, more US inflation data is due with the Producer Price Index.

Key Developments

Wall Street celebrated the US inflation latest reading as the Dow Jones gained 0.43% and the S&P 500 climbed 0.69%. Risk-on flows weighed on government bonds, causing them to decline and boosting yields, despite the inflation data. Asian and European markets also finished higher, supported by signs of stimulus from China.

US Treasury yields initially dropped following the CPI report but rebounded sharply. Similarly, yields in Europe also increased. The Japanese Yen reversed and suffered important daily losses across the board. USD/JPY rose for the fourth consecutive day, climbing above 140.00. On Friday, the Bank of Japan will have its monetary policy meeting.

EUR/USD reached weekly highs near 1.0820 but pulled back under 1.0800. It ended with gains and the trend is up, but it is facing resistance. The European Central Bank is expected to raise key rates by 25 basis points on Thursday.

The Pound outperformed on Tuesday following a better-than-expected UK employment report. Later on the day, BoE’s Bailey said data show the labour market is “very tight”. The UK will report Industrial Production and GDP data on Wednesday. GBP/USD posted the highest close in a month above 1.2600 and is looking at May highs. EUR/GBP erased most of Monday’s gains, falling to the 0.8550 area.

The decision from the People’s Bank of China to ease short-term policy rates helped commodity currencies only modestly. These currencies pulled back during the American session, despite risk appetite, amid a modest recovery of the US Dollar.

USD/CAD traded below the crucial support area of 1.3300, reaching the lowest since February, but rebounded to close the day at 1.3305/10. The pair remains under pressure.

NZD/USD consolidated above 0.6100; it peaked at 0.6176 but then pulled back under 0.6150. New Zealand will report Current Account data on Wednesday.

AUD/USD rose for the fourth consecutive day but was rejected from above 0.6800, offering mixed signals. Australia will report employment data on Thursday.

Gold tumbled to the $1,940 area amid higher government bond yields; after the US CPI report, the yellow metal peaked at $1,971 before reversing its direction. Silver lost 1.65%, ending at $23.65.

Economic Data

The annual Consumer Price Index (CPI) rate dropped in the US to 4% in May, below the expected 4.1%, reaching the lowest level since March 2021. These numbers cemented expectations of a pause from the Federal Reserve on Wednesday. The statement, the economic projections, and Powell’s words will be watched closely for clarity about the next steps from the central bank. Prior to the decision, more inflation data is due with the Producer Price Index.

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