Currency Note

Markets to focus on conclusion of Fed meeting

By Carl Hasty June 16th, 2021

Federal Reserve

The pound is slightly stronger against the euro and the dollar following better-than-expected inflation figures for the UK, which were released this morning. The higher reading reflects the reopening of the economy, with clothing, fuel and eating out contributing to the boost.

This afternoon, MPs will debate and vote on the government’s decision to extend the current Covid measures for at least four weeks. The extended restrictions are likely to pass, although some opposition is expected from Conservative backbenchers.

All eyes will be on the conclusion of the Federal Reserve’s two-day monetary policy meeting later today. Although interest rates are expected to stay the same, the markets will be listening for any comments surrounding inflation and the US’ economic recovery.

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GBP: Inflation data supports pound

The pound has strengthened against the euro and the dollar following better-than-expected inflation figures, which were released this morning.

The consumer price inflation rate in the UK climbed to 2.1% year-on-year in May, beating expectations of 1.8%. This was the highest reading since July 2019 and reflects the reopening of the UK economy. This was fuelled mainly by clothing, motor fuel, recreational goods and eating and drinking out.

This means that inflation is now above the Bank of England’s 2% target, which is an interesting development ahead of its monetary policy meeting next week.

GBP/USD chart over past year

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EUR: Eurozone’s trade surplus widens

The euro is well supported against the dollar ahead of the Federal Reserve’s press conference later today.

Eurozone balance of trade figures were released yesterday, showing that the trade surplus widened to €10.9 billion in April 2021, from €2.3 billion in the same month last year, amid a sharp recovery in global demand. Both imports and exports increased.

Today is a light day for economic data releases, but tomorrow we’ll see inflation figures for the Eurozone.

USD: All eyes on Fed meeting

All eyes will be on the Federal Reserve’s press conference later today. The dollar index, which tracks the currency against six others, reached a one-month high yesterday, but has slipped slightly this morning.

The press conference concludes the Federal Reserve’s two-day meeting about monetary policy. Whilst interest rates are expected to remain unchanged, higher US inflation and a recovering economy will prompt traders to listen closely for any comments around tapering monetary policy.

Any signs that the Fed thinks higher inflation is not as transitory as first thought will also be listened out for. Core inflation figures last week showed the largest yearly rise for May since 1992.

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