Sterling Steady, Kiwi Rebounds, Gold Hits Record

Forex markets have been relatively subdued today. Sterling remains steady after June’s UK CPI data revealed that both headline and core inflation were unchanged from the previous month. Significantly, services inflation also failed to cool, which could keep BoE cautious about making a premature rate cut on August 1. Some key members of the MPC may prefer to see further progress in disinflation before taking any action.

Earlier in Asian session, New Zealand Dollar showed a surprising rebound despite lower-than-expected Q2 CPI figures. Many economists have now revised their forecasts, anticipating the first RBNZ rate cut in November. Kiwi’s bounce can be seen as a “cover-on-news” move, as the Q2 inflation data was not disastrous enough to cause major concern.

For the week so far, Swiss franc is leading as the best performer, followed by Dollar and Euro. New Zealand Dollar remains the weakest, with Australian Dollar and Canadian Dollar also underperforming. Yen and Pound are positioned in the middle of the performance spectrum.

Technically, following up on our post yesterday, Gold did break to new record high. It’s now facing a key cluster projection level at around 2500, with 100% projection of 1160.17 to 2074.84 from 1614.60 at 2529.27 and 161.8% projection of 1614.60 to 2062.95 from 1810.26 at 2535.96. Strong resistance could be seen from there to bring rebound.

However, decisive break above 2500/50 range could prompt upside acceleration to 200% projection of 1614.60 to 2062.95 from 1810.26 at 2706.96. For this upside acceleration to occur, broad-based selloff in Dollar might have to be seen, with EUR/USD breaking through 1.09 handle decisively.

In Asia, Nikkei fell -0.43%. Hong Kong HSI is up 0.01%. China Shanghai SSE is down -0.35%. Singapore Strait Times is down -0.01%. Japan 10-year JGB yield rose 0.0103 to 1.035. Overnight, DOW surged 1.85%. S&P 500 rose 0.64%. NASDAQ rose 0.20%. 10-year yield fell -0.062 to 4.167.

UK CPI steady at 2% in Jun, core CPI unchanged at 3.5%

UK CPI was unchanged at 2.0% yoy in June, matched expectations. CPI core (excluding energy, food, alcohol and tobacco) was unchanged at 3.5% yoy, above expectation of 3.4% yoy. CPI goods annual rate fell from -1.3% yoy to 1.4% yoy. CPI services annual rate was unchanged at 5.7% yoy.

For the month, CPI rose 0.1% mom , matched expectations.

New Zealand’s CPI slows to 3.3% in Q2, vs exp 3.5%

New Zealand’s CPI for Q2 rose by 0.4% qoq, down from previous quarter’s 0.6% qoq and missing the expected 0.5% qoq.

Tradeable inflation, which includes goods and services that are subject to international competition, fell by -0.5% qoq, an improvement from previous -0.7% qoq. Conversely, non-tradeable inflation, covering domestic goods and services, rose by 0.9% qoq, down from prior 1.6% qoq.

Over the past 12 months, CPI growth rate slowed from 4.0% yoy to 3.3% yoy, falling short of anticipated 3.5% yoy. This marks the lowest level since Q2 2021 but remains slightly above RBNZ’s target band of 1-3%.

Tradeable inflation saw a significant decline from 1.6% yoy to 0.3% yoy, reflecting lower imported inflationary pressures. Non-tradeable inflation also eased, dropping from 5.8% yoy to 5.4% yoy, indicating some cooling in domestic price pressures.

Australia’s Westpac leading index ticks up to -0.13%, below trend growth persists

Australia’s Westpac leading index saw a slight improvement, rising from -0.28% to -0.13% in June. Despite this uptick, economic activity is expected to remain below trend until early 2025.

Westpac said while growth is expected to pick up slightly in the latter half of 2024 and into early 2025, it will still be modest, at an annual pace of 2.2%, and is about flat in per capita terms.

Fed’s Kugler signals rate cuts later this year amid continued disinflation

In a speech overnight, Fed Governor Adriana Kugler noted that despite “a few bumps” earlier in the year, inflation has “continued to trend down” across “all price categories.”

She mentioned that supply and demand are “gradually coming into better balance,” with supply bottlenecks easing and demand moderating due to high interest rates and the depletion of households’ excess savings.

Kugler also pointed out that the labor market has seen “substantial rebalancing,” with nominal wage growth moderating. This trend suggests that inflation will continue moving toward Fed’s 2% target.

Kugler indicated that if economic conditions continue to evolve favorably, with more rapid disinflation and resilient employment, “it will be appropriate to begin easing monetary policy later this year.” However, she stressed that her approach will remain data-dependent.

She added that if the labor market cools too much and unemployment rises due to layoffs, it might be necessary to cut rates “sooner rather than later.” On the other hand, if data do not confirm that inflation is moving sustainably toward 2%, it may be appropriate to “hold rates steady for a little longer.”

IMF’s Gourinchas suggests Fed can wait before cutting rates

IMF chief economist Pierre-Olivier Gourinchas stated in a Reuters interview that Fed can afford to “wait a little bit” before lowering interest rates. He expected that one Fed rate cut is likely this year but refrained from specifying the timing.

Gourinchas noted that the IMF expects US inflation to reach Fed’s 2% target in the first half of 2025, ahead of Fed’s internal projection of 2026. This suggests that there would not be an “extended period” before rate cuts become appropriate.

Looking ahead

Eurozone CPI final will be released in European session. Later in the day, US will release building permits and housing starts, industrial production and capacity utilization. Fed will also publish the beige book economic report.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.2948; (P) 1.2965; (R1) 1.2992; More…

GBP/USD is staying in consolidation below 1.2994 temporary top and intraday bias remains neutral. Further rally is expected as long as 1.2859 resistance turned support holds. Above 1.2994 will resume the rally from 1.2298 and target 100% projection of 1.2298 to 1.2859 from 1.2612 at 1.3173, which is slightly above 1.3141 key medium term resistance. However, break of 1.2859 will turn bias to the downside for deeper pullback.

In the bigger picture, corrective pattern from 1.3141 medium term top (2023 high) could have completed with three waves to 1.2298 already. This will now remain the favored case as long as 1.2612 support holds. Firm break of 1.3141 will target 61.8% projection of 1.0351 (2022 low) to 1.3141 from 1.2298 at 1.4022.

Economic Indicators Update