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Interest Rates an Unmoveable Boulder

World currencies last week were travelling in different directions. The euro was down 0.1% against the dollar as part of a correction and because of the looming Brexit referendum. The pound was up against the dollar by 0.6%. JPY was the winner in growth terms for developed countries with a 2% rise. The Chinese yuan was unchanged.

Last week’s main event was the US Fed leaving rates unchanged. Yellen explained this by blaming outside factors; Chinese slowdown, Brexit and a slow in developed countries’ growth. Nevertheless, Yellen warned we will probably see a rise before the year’s end.

Retail sales in May in the US were up 0.5%, upping forecasts by 0.2% but way below April’s 1.2%: showing reason for Yellen’s caution. Industrial production in May was down to 0.4% and the CPI YoY rose by 1% in the country, all defying expectations but in different directions. In any case, the market took this as negative for the dollar.

The Bank of England also kept things unchanged. The Brits are doing well in steering the country out of the economic crisis, although problems still persist. The county’s May CPI was 1.2% YoY, PMI: 0.5% (both being slightly below expectations). Retail sales for the month were up 6% (forecasted: 4%), with a MoM 0.9% rise.

The data shows the strength of the British economy and indicates that the reality of a Brexit may not be so grim as the majority of the British establishment is making out. The stats helped the pound, but with the referendum three days away, expect market volatility.

Eurozone April manufacturing rose 2% YoY (forecasted: 1.3%), whereas the CPI in May fell 0.1% YoY. However, it was up MoM by 0.4% and this was 0.1% more than expected. However the market ignored the positives.

Japan’s central bank also didn’t buck the trend with their interest rates, leaving them as was (-0.1%). At the same time, April industrial production fell 3.3% YoY; indicating a a slowing in the fall and therefore taken optimistically by the market.

Whatever the UK referendum choice is, this week will be a historic one for Europe.

Calendar of events for this week

Tuesday (21st June), ECB’s Draghi (16:00 EET) and Fed’s Yellen (17:00 EET) to speak.

Wednesday (22nd June), ECB meeting (10:00 EET) and Yellen to comment (17:00 EET).

Thursday (23rd June), UK Brexit referendum.


We expect to see the euro/dollar at 1.11-1.13 this week, with the pair’s movements dependent on that of the Brexit referendum outcome. The GBP/USD could fluctuate in a 1.40-1.44 range with this pair even more dependent on the referendum outcome and volatility being even higher.


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