The crucial US retail sales and inflation figures for May will be released at 13:30 BST today, June 14th, it will be followed by the long-awaited FOMC June rate decision at 19:00 BST and the press conference at 19:30 BST.
US CPI and core CPI has reached, and held above, the Fed’s 2% target since December 2016 and November 2015 respectively, however, both saw a decline since February 2017 partially caused by falling energy prices. Consensus for CPI and core CPI for May (YoY) are 2.0% and 1.9% respectively. If the figures released are better than the consensus it will likely provide USD support.
US retail sales (MoM) has seen a downtrend since 2016 December mainly caused by the decline in auto and petroleum sales. The April figure saw a 0.4% rebound. Retail sales excluding autos (MoM) also saw a downtrend since January 2017 with the April figure showing a 0.3% rebound.
Per the CME’s FedWatch tool the probability for a June rate hike has climbed to 99.6%. Regardless of the incoming retail sales and inflation data performance it appears to be a certainty that the Fed will announce a rate hike today. At present a September rate hike appears to be less likely as economic data over the past few months showing a slowdown. Besides, recent political turmoil also likely result in the Fed’s actions being less active. Per the CME’s FedWatch tool the current probability for a September rate hike is only 23.4%.
The Fed will continue monitoring economic data performance, labour market conditions and inflation pressure over the following months to adjust the future rate hike pace. If the US economy continues to show a slowdown with ongoing political turmoil then the next rate hike will likely happen after December.
US data performance, and the tone of the Fed’s statement, will be the major drivers of USD and gold strength this week. USD prospects currently remain moderately bearish. The dollar index has seen a 0.4% fall over the past three sessions. This morning, in early European session, it hit a 4-day low of 96.82, trading below the resistance level at 97.00.
Gold rebounded 0.85% since Tuesday after testing the significant support line at 1260, hitting a 3-day high of 1269.93 this morning. USD/JPY recovered the significant level at 110.00 on Tuesday. EUR/USD consolidates above the psychological level at 1.1200. GBP/USD has rebounded 1% since Tuesday, hitting a 3-day high of 1.2795 this morning.