Author Archives: Ricky Kielkowski

Dollar Slips Against Euro and Sterling Ahead of Key US Inflation Data

The dollar continued to lose ground against the euro and sterling yesterday, as currency market dynamics shifted. Today’s focus is on a key data point that could shape the direction of the dollar: US CPI inflation for April.

Why US Inflation Data Matters

Today’s inflation figures are crucial because they will influence the Federal Reserve’s decisions on interest rates. The data from the coming months will play a big role in determining when the Fed might start reducing rates, making today’s release highly anticipated.

Dollar at Risk of Further Moves

The US inflation numbers present a two-way risk for the dollar. If inflation is higher than forecasted, it could give the dollar a boost. On the other hand, if the figures come in lower than expected, it may add more downward pressure on the currency.

Retail Sales in the Spotlight

In addition to the CPI data, today’s US retail sales figures for April also deserve attention. These numbers provide insight into consumer spending and can impact the market’s view of economic health, potentially influencing the dollar’s performance.

Key Data from Europe

Across the Atlantic, the spotlight is on a few important releases. The second reading of Eurozone Q1 GDP, Q1 employment figures, and March industrial production data are set to be published today. While these figures are important, they are unlikely to cause major movements in the euro unless there are unexpected results.

Stay tuned for today’s data releases, as they could bring new shifts in the currency markets.

The Bank of England’s May meeting was the centrepiece of Thursday’s macro diary. As expected, the central bank maintained the key interest rate at 5.25%. However, the BoE adopted a dovish stance. Indeed, Governor Bailey did not rule out a rate drop at the upcoming meeting on June 20th. 

He stated that by this meeting, the BoE would have two full sets of data, including two months’ worth of inflation figures. He also mentioned that the Bank of England may need to decrease interest rates more than markets are currently pricing in. Market rate expectations were not significantly influenced by Governor Bailey’s comments or the dovish tone of the meeting statement/minutes. 

Sterling had some early downward pressure following the BoE press conference, but this was short-lived. Instead, over the last 24 hours, the dollar has fallen modestly against both the euro and pound. The dollar suffered from a negative surprise in the weekly unemployment claims statistics. 

The UK remains in the spotlight today, with the early morning announcement of Q1 GDP. It revealed that the economy returned to growth in the quarter, expanding by a better-than-expected 0.6% quarter on quarter (vs. 0.4% forecast). The news has given sterling a boost in this morning’s FX session. Later today, the ECB meeting account and US consumer sentiment (May) are the important announcements to watch.

Today’s most crucial economic event is the Bank of England monetary policy announcement at midday. It is anticipated that the BoE will keep rates unchanged at 5.25 percent.

UK CPI inflation fell to 3.2 percent in March (expected 3.1%) signalling that the cost of goods and services is dropping. However, inflation still remains above the 2 percent target inflation rate, indicating there is still work to be done by the BoE.

One member of the Monetary Policy Committee voted for a rate cut in March by 25 basis points, the remaining eight voted for no change. Markets will keep a close eye on the votes from the members of the committee to see their stance on future rate cuts.

It is expected that the Bank of England will cut rates by 0.25 percent in June or August. There will be two CPI inflation releases before the next MPC interest rate decision in June, so both of these releases will be closely monitored.

Pound Sterling has been on the backfoot against the other currencies in the G10 leading up to the interest rate decision today. The dovish stance from the BoE has shown no signs of support for the Pound this week.