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Global market watch - 11th June 2021

US May CPI was expected to show an annual increase of 4.7% but was released at 5%. Although this was again an upside beat to inflation expectations, US yields, which had initially pushed higher then started to move lower again with the bond market deciding again to follow the Fed and its suggestion that inflation would be short lived. US ten year yields have fallen this week from 1.6% to 1.45% as at close of business Thursday. Consumer sentiment will be looked at today for direction.

USDCAD has continued to squeeze lower over the past 24 hours. Capacity utilization is released this afternoon and will hopefully give more direction.

EURUSD stayed trading in recent ranges with the ECB, keeping monetary conditions unchanged. However, they slightly upgraded their GDP forecasts for 2021 and 2022 from 4.0% and 4.1% to 4.6% and 4.7% respectively. Inflation forecasts were also increased to 1.9% from 1.5% for 2021 and to 1.5% from 1.2% for 2022. 2023 inflation was expected to stay at +1.4%. These forecasts fitted with the ECB’s utterings that inflation experienced after the pandemic would be transitory. ECB President Lagarde said that underling price pressures remained subdued and that although the ECB was more optimistic on growth than three months ago, there really wasn’t much change to the outlook.

The pound had initially been under pressure yesterday after news broke that US President Biden had accused PM Johnson of ‘inflaming’ Irish tensions and imperilling the Northern Ireland peace process over Brexit. However, after the release of US inflation data, that wasn’t too far from estimates and the ECB meeting, which also didn’t stay far from what was expected, sterling was a sought after currency. We have just had the release of UK GDP which was released as gaining 2.3% and slightly lower than the 2.4% expected, while industrial production fell 1.3% rather than the 1.2% gain expected. Bank of England Governor Bailey said that innovation would help with stability of the financial sector.

The AUD stayed firm as the US$ tried to price in the latest US inflation data. There was little news overnight and an Australian holiday looms on Monday. So Tuesday could be interesting with the release of the latest MPC meeting minutes.

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