Australian GDP recorded better than forecast 1.6% growth vs. 1.2% consensus call, instantly raising market expectations of an RBA rate hike in the near future. Although the RBA chose to stand pat tonight, keeping short term rates at 6.25%, if Australian economy continues to demonstrate strong performance, the pressure on the monetary authorities to tighten will escalate considerably. Market’s attention will turn next to tonight’s employment change report due 0:30 GMT. Analysts expect a decline to 10K new jobs from 49.6K generated the month prior, but if employment data once again surprises to the upside the likelihood of another 25bp rate hike at RBA’s next meeting on July 3rd will be virtually guaranteed. To put Australia’s employment data into perspective, last month results would be equivalent to 735K jobs created in the US if they were normalized for difference in population figures and at such a torrid pace RBA officials would be compelled to temper growth.

Meanwhile, across the pond data was mixed as Nationwide survey showed consumer confidence in UK reaching its best reading in nearly two years as the index jumped from 90 in April to 99 in May, but at the same time the BRC shop index registered only a tepid 0.4% year over year gain. UK consumers feel more positive about their prospects but the reality of higher rates and persistently high energy costs have clearly crimped discretionary spending and we believe it is the latter factor rather than the former that is likely to exert more influence over UK monetary policy makers as they ponder their next move. Pound slipped slightly in early London trade, but stayed within striking distance of the key 2.000 barrier. Given the positive momentum generated in the unit over the past week, it is quite possible that the pair could challenge the 2.000 figure once again especially if ECB rhetoric is hawkish and the currency market anticipates another across the board round of tightening from every major European economy.

Finally, the marquee event of the day will be Mr. Trichet’s press conference after the expected rate hike to 4% with traders focused on only one question – when will the next hike occur? Typically, Mr. Trichet refuses to assign specific date targets to any future policy moves and we anticipate today to be no different. Although the EZ economy continues to perform well, ECB officials are unlikely to rush their next policy action especially with headline inflation contained at 1.9%. Instead we believe that they will want to digest the impact of the current hike for at least several months before considering any further tightening.

Boris Schlossberg is a Senior Currency Strategist at FXCM.