Global overview
The U.S. dollar and its chief peers treaded water ahead of today’s monthly snapshot of American inflation. Whether the buck sinks or swims today will partly hinge on the latest inflation reading. April consumer prices likely steadied at a 5% annual rate, the lowest level in two years, but still far above the Federal Reserve’s 2% goal. Core inflation, which is considered a more accurate barometer of underlying prices, is expected to tick lower but to a still elevated 5.5% annual pace. Another hot reading of inflation could lend support to the dollar, an outcome that would challenge the view of the Fed cutting interest rates by year-end. Cooler than expected inflation, on the other hand, could exert fresh downward pressure on the buck as it would provide some over for central bankers to ease policy if recession risks increase over coming months. After this week, the Fed will get to parse another month’s worth of jobs and inflation data before the central bank meets in mid-June, meaning today’s market reaction may not jolt currencies out of their ranges.
Growth concerns check euro’s rise
The euro kept to a lower altitude and has now gone two weeks since it reached a one-year peak against the greenback. The economic resilience narrative that has helped propel the euro higher has moderated following a string of downbeat readings on the bloc’s biggest economy. Recent numbers on Germany have shown larger than expected declines in both factory growth and consumer spending. Consequently, recession risks haven’t been entirely put to bed, leaving recent euro gains vulnerable.
Sterling holds near highs
The UK pound softened from one-year highs against the U.S. dollar ahead of America’s monthly snapshot of inflation. The data, if hot, could challenge the view of the Bank of England adhering to a more hawkish policy path over coming months, a theme that’s proven pound-positive of late. Downside for sterling was limited ahead of a Thursday rate meeting of the BOE at which UK central bankers are expected to lift rates by a quarter percentage point to 4.50%. Key for sterling’s bull run will be whether officials dial up their hawkish rhetoric after UK inflation kept above 10% for the seventh month running in March.
Dollar cools along with U.S. inflation
Cooler U.S. inflation weighed on the dollar by raising an already elevated bar for the Fed to consider another interest rate increase. Headline consumer inflation slowed to a 4.9% annual rate in April, the lowest level in two years, which compared to forecast to hold steady at 5%. Less volatile core inflation also moved in the right direction by ticking down to 5.5% from 5.6%. Still, the jury remains out on what direction the Fed takes rates over coming months, given the still elevated level of inflation.
Dollar perched near top of weekly range
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: May 8-12
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
