Euro Area inflation rose to 8.1% in May, up from 7.5% and above expectations of 7.7%. The core figure also printed above expectations at 3.8% vs 3.5% and thus reaffirms the case for ECB tightening in Q3. Get your market update from JMcQueenFX here:
Reminder, today is month-end and thus FX rebalancing may lead to noisy price action as we head towards the 4pm London fix. At present, investment bank models signal net USD selling.The WMR Fix is one of the most widely used benchmarks for FX trading, taking place every day within a 5-minute window around 1600 London time. The fix provides a standard set of currency benchmark rates so that equity and bond investors can compare portfolio valuations and performance with each other.
The WMR fix tends to coincide with a sharp rise in trading volume, prompting a sizeable increase in liquidity. Occasionally, this allows for large real money flows to take place without causing too many distortions. However, flows can also be dominant in one direction leading to outsized moves in a very short period of time.
The largest bout of volatility stems from the month-end fix, taking place on the last business day, where market extreme moves can often occur in the lead up during 15:00-16:00 London Time. These FX flows are derived from mostly equity rebalancing. As such, if a UK portfolio manager holds US Dollar-denominated assets and seeks to hedge FX risk, then a monthly rise in the value of those assets will lead to more dollar hedging . For example, if equities are FX hedged and US stocks (
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Euro Latest – EUR/USD Nudges Higher as German Inflation Continues to SoarGerman price pressures today hit a fresh multi-decade high with annual inflation hitting 7.9%, while monthly inflation rose by 0.9%. Get your market update from nickcawley1 here:
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