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Risk Aversion Raised

Trump fires FBI Head

 

President Trump continues to think he is still Chairman of a major corporation rather than the “Leader of the Western World”.

 

His action in firing the FBI Director despite James Comey being criticized for his handling of the Clinton email scandal has been labelled politically motivated. Trump has had a love hate relationship with James Comey over the past year. He praised his handling of the email issue. However, it appears that his investigation of Russian meddling in the election has struck a little too close to home.

 

Congress is divided on the issue. This doesn’t bode well for the negotiations Trump is going to have to enter to pass his tax and social care programmes.

 

The dollar index fell to test support at 99.40.

 

An additional factor in renewed risk aversion is a comment by the new North Korean Ambassador to the U.K. that Pyongyang is close to performing its sixth nuclear test. A more liberal and conciliatory President has just been elected in South Korea. His commitment to dialogue with Kim Jong Un could be seen as a weakness to be exploited by the North Korean leader.

 

U.K. inflation outlook improving.

 

The National Institute for Economic and Social Research has lowered its prediction for the peak in inflation in the U.K. Contrary to the view of BoE Governor Mark Carney, the NIESR had seen inflation overshooting its target to reach 3.7% in the Autumn.

 

This view has been tempered somewhat, influenced by the bounce in the value of the pound. They now see a peak of 3.4% still above Carneys level of 2.7% but as Sterling strengthens, these two estimates should converge further.

 

Tomorrow release of the BoE’s Quarterly inflation report should also refer to the pound’s improvement. Following that, the MPC will meet. Interest rates will remain unchanged but there could be a shift in either the amount or the tenor of the asset purchase programme.   

 

Predictions of a landslide victory for the Conservative Party in the forthcoming election continue to provide support. A correction on profit taking on long positions is likely, similar to what has been seen in France as the reality of Brexit and a Government without a viable opposition kicks in.

 

Chinese Inflation data released.

 

Consumer prices in China grew by 1.2% YoY in April up from 0.9% in March. This relatively benign number will please the PBOC struggling to find a monetary path to drive the vast Chinese economy to global prominence.

 

Producer prices, the cost of raw materials at the factory gate, rose by 6.4%. Lower than both the previous release and analysts’ expectations.

 

Tomorrow’s BoE MPC meeting will be preceded by the release of industrial and manufacturing production data together with trade figures. Expectation is for an improvement in each of these measures which should temper and Sterling weakness from dovish comments on inflation.

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