The dollar benefited in yesterday's session, gaining across the board despite disappointing retail sales numbers in May. Markets may have reacted to the EU's Ursula Von der Leyen’s comments that trade talks between the EU and US were advancing and that the EU and US have agreed on a July 9th deadline. Sterling declined across the board ahead of the release of this morning's CPI numbers, shrugging off the earlier news of a US and UK trade deal. The deal is expected to reduce the tariff shock by around 3-7%, with impact on GDP expected to be a modest amount of 0.1%.
Dollar gains continued overnight after Donald Trump met with his national security team for over an hour to discuss the Middle East conflict, fuelling speculation that the US may join Israel's attack on Iran.
*Daily move - against G10 rates at 7:00 am, 18.06.25
** Indicative rates - interbank rates at 7:00 am, 18.06.25
UK CPI dropped less than expected in May to 3.4% from 3.5% in April, services CPI fell to 4.7% from 5.4% and the core CPI number dropped to 3.5% from 3.8%. However the drop has been partly attributed to ONS fixing an error found in April's numbers. Market expectations for this year's rate cuts are a further rate cut in September followed by another in December. GBP is marginally higher this morning.
In tonight's Fed meeting we are not expecting any rate cuts and in light of the current geopolitical situation, there will undoubtedly be a reluctance to signal any further imminent rate cuts despite US CPI softening over the last 4 months. The Fed will also be revising its dot plot in the meeting. Markets are currently pricing in a rate cut in October and an 85% chance of another rate cut in December, so any push back from the Fed on a second rate cut will likely benefit the dollar.
Read more about the Federal Reserve's interest rate decisions here -When is the next Fed interest rate decision?
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