In FX markets, the USD is marginally stronger. US Treasury Secretary Mnuchin tried to row back on Trump’s comments yesterday that China and Russia were “playing the FX devaluation game” by saying it was merely a “warning shot” not to engage in FX devaluation going forward. The EUR has fallen back from above 1.24 after a weaker German ZEW survey, the latest in a string of weaker than expected economic numbers out of Europe (which may be partly weather-related).
The GBP made a new post-Brexit high overnight, although it has since eased back to below 1.43. The UK labour market report showed lower than expected earnings growth (although the less volatile ex-bonuses wage measure was on expectations), which coincided with the intraday fall in GBP. The market prices a greater than 80% chance that the BoE will raise rates at its meeting next month, which would be the Bank’s second rate hike this cycle.
The NZD is again one of the underperformers overnight, although at 0.7340 it remains towards the upper end of its trading range this year. The Global Dairy Trade auction overnight showed a 0.9% increase in whole milk powder price, which provided a brief 10 pip boost to the NZD. The focus shifts to CPI, released tomorrow, and given signs that speculative positioning in the NZD seems to have shifted net long, we think the NZD is probably vulnerable to a downside surprise.
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