FX round-up: US consumers take notice of China, Greece, but will the Fed?
Risk trades recovered slightly on Tuesday ahead of the result of the US Federal Reserve’s next policy meeting.
Euro/dollar - a popular carry currency pair for 'carry-trade' purposes until recently - edged lower by 0.21% to end the day at 1.1064.
That came amid modest advances in the equity space, although oil futures continued to be soft.
In a worrying development for the Federal Reserve, economists pointed out how various inflation gauges Stateside had continued to move lower.
According to Deutsche Bank's Joe LaVorgna the 29% over-the-year fall in the CRB commodity index implied that headline consumer price inflation Stateside would slide from 0.1% at present to -0.9% over the next few months - its largest drop since September 2009.
On the other hand, core inflation was expected to move towards 2% in the months ahead, making for a 'tricky' policy set-up for the central bank.
On Wednesday morning, the Financial Times's Jamie Chisholm would point out how the US five-year break-even rate - a widely tracked inflation gauge - was back below 1.4% versus 1.83% over the past five years. In late June it was 1.75%. A rebound in oil futures could swiftly change that state of affairs, Chisholm warned.
However, "for now, it is contributing to a feeling that global deflationary pressures are building," he added.
His remarks seemed to echo those of many analysts over the last few sessions given the recent sharp drops in the commodity space.
Worth noting, the US Conference Board’s consumer confidence index for July slipped to a reading of 90.9 after a print of 99.8 in the month before – its lowest reading since September 2014.
That was far less than the 100.0 pencilled in by analysts.
“Weakness stemmed from diminished expectations — probably a spill-over from financial market strains related to Greece and China,” Maury N. Harris at UBS said.
“We see parallels to the late-1990s Asian financial crisis. Then, as the effects on US activity proved minimal, confidence gradually regained its footing over about six months. For the Fed, one weak month will not make a difference. It will make a difference if it is sustained and if it is reflected in other consumer confidence measures as well,” Harris added.
Cable meanwhile advanced 0.32% to reach 1.5610.
Dollar/yen rose 0.22% to reach 123.57.