CPI passed, BOE up
US inflation data released yesterday caused volatility within the US Dollar. This was most widely observed within FX spot crosses, however, a deeper look into the forward and swap markets showed more significant price upheavals. Early on in yesterday’s European session forward points on many emerging market vs. US Dollar crosses had been rising amidst soft US rate expectations. Despite the Fed’s decision last week, this trend had been gradually emerging, bringing with it demand for the carry trade amidst many falling EM FX spot valuations. However, when US inflation data hit screens yesterday, confidence behind forecasted US monetary policy was undermined and prices on swaps within Dollar crosses wavered.
The data showed the month-on-month growth in consumer price index inflation come in at 0.4% in April. The underlying data was favourable enough to mean that annualised inflation recorded below 5%. However, with the exact reading at 4.9%, it may not be time for celebration just yet. The reading was important as it continues to show inflation moving in the right direction. However, crucially for the move in the FX swap market, presented a challenge to those participants expecting rate cuts from the Fed later this year. Month on month figures would have to be considerably lower to force the Federal Reserve into conceding that they would be seeking to entertain rate cuts. The data is positive for US and indeed global inflation, marking the first sub-5% reading in two years, down from a peak of 9.1% in June last year.
With the Dollar ultimately weakening following the inflation decision, markets appear to have steadied. This will allow attention to shift to the Bank of England today as it releases its latest monetary policy decision. This publication as well as the subsequent press conference from Governor Bailey will attract similar scrutiny to the shape of the rate curve in the UK. As we wrote yesterday, the decision itself appears to be a foregone conclusion. However, as always, the key for markets could be in the detail and even tone of the press conference to follow this afternoon.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Morning Brief – Parity
Charles Porter
Thu 18 Apr 2024
Parity As we brought to you earlier this week, there is an increasing chatter in the market about whether EURUSD has the momentum to challenge parity once again. At face value, of course, this would create a meaningful value change in the world’s foremost currency pair which has already seen a significant exodus of value […]
Morning Brief – US Dollar
Humphrey Percy
Wed 17 Apr 2024
US Dollar Surging on a strong US economy together with further geopolitical tensions in the past week, USD is at its strongest versus EUR this year and came within a whisker of breaking through 1.06 in yesterday’s trading. Against the Japanese Yen USD was 154.55 which caused Japanese Finance Minister Shunichi Suzuki to break cover […]
Morning Brief – France
Humphrey Percy
Wed 10 Apr 2024
France Quite simply the numbers do not add up for President Macron and his future in government, never mind La Belle France and its citizens : France is the third most indebted EU country after Greece and Italy with a debt to GDP ratio of 110.6%. In the past year the deficit has increased by […]
