July 05, 2023

Daily Report 05/07/2023

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Headline inflation in the UK remains above 8.7% as higher cost of services and food prices have faded the impact of lower petrol prices. Supermarkets are now being questioned on whether they have kept fuel prices higher than they should have, potentially not passing on savings to customers which contributes to a higher level of inflation. Core inflation that doesn’t include volatile oil and food prices has refreshed its recent highs at 7.1%. UK’s labour market conditions are extremely tight due to the Brexit event and early retirements by individuals.

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Germany’s Exports improved to -0.1% MoM in May, from -0.5% expected and 0.7% prior but the Imports came in as 1.7% versus -1.7% prior and 3.1% expected. As a result, Germany’s Seasonally Adjusted Trade Balance dropped to €14.4B from €18.4B versus €17B. Overall, the single currency remains rangebound as markets look for further clues from European Central Bank members what they will look to do later this year.
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The US central bank is widely expected to lift borrowing costs by 25 bps at the end of the July policy meeting. This means the markets are still lending support to the US Dollar. That said, the incoming softer US macro data raises questions over how much headroom the Fed has to continue raising interest rates and holds back the USD bulls from placing aggressive bets. The market focus remains on the June FOMC meeting minutes, due for release this evening. Investors will look for fresh clues about the Fed’s policy outlook, which will play a key role in influencing the near-term USD price dynamics.

Key Data 

19.00 FOMC Minutes