Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD surges after CPI
US stocks tumbled, bond yields surged and the US dollar hit the highest level since November after US inflation came hotter than expected for the third-straight month.
Headline inflation in March came in at 3.5% in annual terms (above the 3.4% forecast) while the core reading was reported at 3.8% (versus the 3.7% expected).
The news saw markets swiftly end expectations for a June rate cut. Before the CPI announcement, market pricing for a cut was around 60% probability. After, the probability fell to just over 20% (source: CME).
The greenback jumped higher with the USD index at the highest level since 14 November. The Aussie led the losses with the AUD/USD down 1.8%.
Intervention watch in Asia
The stronger US dollar was most notable in Asia with the USD/JPY up 0.9% as it hit new 34-year highs.
The USD/SGD jumped 0.6% with the pair at the highest level since November.
The USD/CNH gained 0.4%.
The move in the USD/JPY brings to the fore the risk of FX intervention from Japanese authorities with markets likely to be on edge for any signs of movement from Japan’s Ministry of Finance.
ECB in focus
The European Central Bank is in focus tonight after two major central banks kept rates on hold over the last 24 hours.
Yesterday, the Reserve Bank of New Zealand kept rates on hold at 5.50% and provided no hint that it might consider rate cuts in the near term. The NZD was higher after the decision but fell in line with most markets after the US CPI number.
Overnight, the Bank of Canda also kept rates on hold, at 5.00%, and signalled it also needs more evidence before cutting rates.
Tonight’s ECB decision will be key with markets now seeing the ECB as the major central banks most likely to cut substantially over the next 12 months. Any confirmation tonight that the ECB is open to rate cuts could see the euro swiftly lower.
Aussie down 1.8% overnight after US CPI
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 8 – 13 April
All times AEDT
*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.
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