• EURUSD hits 6-month high
  • Manufacturing recovers
  • What’s next for the dollar
  • Inflation won’t inflate GBP

Good morning,

The euro has hit six-month highs against the dollar this morning on news of fresh political scandal. The Washington Post reported last night that President Trump revealed classified information to Russian officials. The White House immediately denied the allegations, but investors are on edge due to a tweet from the president this morning seems to contradict that message. To read more details about the developments and the euro’s move, see the full write-up.

US industrial output rose the most in three years, up 1% in April from a month prior and over three times the value that analysts were expecting. Gains were led by a strong recovery in mining and manufacturing. Manufacturing production rose 1%, recovering from a -0.4% drop in March. This was not enough to inflate the beleaguered dollar as housing starts unexpectedly declined in April and US politics continue to weigh on the USD’s outlook.

The dollar is on track to fall for a fifth straight day. As we mentioned yesterday, futures have gone net long on euro for first time since May 2014. This could allow the euro to maintain these gains and possibly push higher against the dollar if political tensions escalate. The Aussie dollar has been interesting to watch today as we juggle a few themes. An uptick in Chinese steel production bodes well for Australia’s mining sector, but the RBA’s cautious tone toward employment and housing markets “warrant careful monitoring.”

Sterling was the weakest currency when traders in North America began their day despite UK inflation beating analyst expectations. Why the move down? Consumer prices rose 2.7 year-on-year, above consensus expectations, but exactly in line with the Bank of England’s forecast. The BOE said last week that inflation will peak faster and lower than previously thought, turning back down as the economy adjusts to a lower value currency. This strengthens the argument that the BOE will not be looking to hike interest rates any time soon.

EURUSD: Euro topping six-month highs against the greenback as political headlines roil Washington.

GBPUSD: Sterling weaker after inflation came in exactly where the Bank of England predicted, fueling bets that they won’t be hiking interest rates any time soon.

AUDUSD: Aussie dollar flat after a bumpy session overnight, playing between themes of a cautious central bank and stronger production from China.

USDCAD: The loonie is higher against the USD as the greenback continues to trade to the downside on fresh political concerns.

USDJPY: Yen taking further gains against the USD as investors worry that sensitive information was relayed to Russian diplomats.