Central banks kept rates on hold but were more Hawkish in their asset purchases and monetary policies. The US dollar has been unable to continue its rise on the back of the stronger US CPI print yesterday, which is supportive of the major crosses.
Busy day in the markets due to central banks from both ends of the globe announcing more Hawkish monetary policies. We started the day with the RBNZ keeping their bank rate unchanged at 0.25% but announcing a cessation of additional purchases under the LSAP program. Rate hikes are likely to follow in coming RBNZ meetings. The New Zealand dollar continued to be the strongest currency through the London and Us session, taking out 6 previous trading days’ worth of price action to the upside.
UK CPI which came out just before the London open put the pound on firmer footing as UK CPI year-on-year came in above expectations at 2.5%, with food, second-hand cars along with clothing and fuel rising. GBPUSD was able to rise on higher CPI data and a weaker US dollar but came up against significant resistance just below the 1.39000 level and at the daily 20 exponential moving average. A move below the $92 level on the US dollar index would be needed to get the pound to appreciate above the current daily July swing high.
The Central Bank of the Republic of Turkey came in line with expectations keeping their rates unchanged at 19.00%, with the current tight monetary policy likely to be maintained until inflation falls.
As the US session approached, we received US PPI data which like CPI yesterday, came in above expectations. At the same time, Fed Chair Powell delivered his prepared statement which reiterated the June FOMC statement that they are monitoring for progress within the jobs market which is wat off currently, and that they will maintain economic support until the recovery is complete. Within the Q&As that are directed to Fed Chair Powell, he stated that house prices are moving up across the country at a high rate. It will be interesting to see how much probing is done into the MBS purchases and the role of low-interest rates in terms of having a causal effect on the rising prices.
The Nasdaq reached up into the 15,000 level in the futures at the US open before descending 1% to 14,850 into the London close. At the time of writing the rebound to test the 14,950 intraday support has occurred so it will be interesting to see if this now acts as resistance and further profit taking occurs.
The Bank of Canada followed the RBNZ with tapering to their asset purchases while keeping the bank rate unchanged. The Canadian economy still has considerable excess capacity, and the recovery still requires extraordinary monetary support. The USDCAD has done a 140 pip round trip, having fallen on the Hawkish BOC announcement. There had also been news regarding the United Arab Emirates and Saudi Arabia working out a deal for the UAE, which has resulted in the price of oil dropping by $2 per barrel as the UAE came out and denied the rumors. The EIA report stated that commercial crude oil stockpiles in the United States decreased by 7.9 million barrels in the week ending July 9. The inventory now stands at 437.6 million barrels, which is around 8% below the five-year average for this time of year.