DOLLAR FALLS AS US PRODUCER PRICES DISAPPOINTS
Yesterday, Donald Trump exited the Joint Comprehensive Plan of Action (JCPOA), commonly known as the Iran deal. In a ten-minute speech, he outlined his reasons for exiting the deal but failed to state his next plans to prevent Iran from acquiring nuclear weapons. Other countries in the deal – including Iran – announced that they would remain and make it work. Most importantly, the president announced that the country would reintroduce the sanctions on Iran, which will affect major Western companies like Boeing and Royal Dutch Shell which have business dealings with Iran.
In the United Kingdom, the ongoing challenges on the customs union issue continued. This time, in a vote, peers backed retaining key aspects of the EU single market by participating in the European Economic Area. In the vote, they got 245 votes against the opposition’s 218 votes. This was in defiance of both the government and the opposition side led by Theresa May and Jeremy Corbyn respectively. At the same time, data from the British Retail Consortium (BRC) showed that the retail sales fell by 4.2%, which was lower than the negative 0.8% decline that was expected.
In the United States, the Bureau of Labor Statistics (BLS) released the PPI numbers. The data showed that producer prices rose by 0.1%, which was lower than the expected 0.2% and last month’s 0.3%. On an annualized basis, the consumer prices rose by 2.6%, which was lower than the expected 2.8% and the previously reported 3.0%. This number is very important as a measure of inflation because it measures the change in price of goods sold by manufacturers.
After days of declines, the GBP/USD pair was little moved today. It is now trading at 1.3582, which is slightly higher than the multi-monthly low of 1.3482. Today’s narrow range was a result of the ongoing negotiations on Brexit and the expectations on the inflation report that will be released tomorrow. A higher-than-expected inflation outlook and a hawkish BOE will reverse the downward trend on the pair. The BOE is expected to leave rates unchanged but traders will read the statement to spot any change of language.
Dow Futures climbed to the highest level since May, 1. The index is now trading at $24,455. The soaring of the index is partly attributed to the earnings season, which to a large extent has beaten all expectations. Still, the index has fallen by about 1.5% during the year, partly because of the ongoing issues on trade and treasury yields. If the index continues with the upward momentum, there is a likelihood that it could test the $24,860 resistance level.
After days of decline, the EUR/USD pair reversed slightly after data from the US Bureau of Labor Statistics showed that the US producer price index rose by 0.1%, lower than the 0.3% traders were expecting. The number measures the change in price of goods sold by manufacturers. The pair is now trading at 1.1875, which is higher than the recent low of 1.1812. In the short term, the pair could test the 1.1900 resistance level. However, the main number will be tomorrow when the change in consumer prices will be released.