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  • richard evans

Markets await US inflation numbers

Good morning

US and Asian markets closed a bit mixed, expect more of the same from Europe as we sit and wait for US inflation numbers this afternoon. We’re looking for lower readings than last month, a YoY headline of around 5.2% against 6% last time out seems to be the consensus. The lower the number, the more chance there is Fed will keep rates unchanged, which in turn should keep the US dollar weaker.

Feds Goolsbee, a new name on the block having become head of the Chicago Fed in January, gave some pretty dovish comments, calling for caution and patience from the Fed in light of the banking crisis, credit conditions and the economy overall. Feds Harker has said he’d like to get rates above 5% and then hold, saying he sees Fed actions are working but added that it can take over a year for monetary policy changes to really be felt. Not sure if he is voicing a concern there that the economy hasn’t yet been full hit by the impact of higher rates.

Mind you CITI think inflation can surprise to the upside and they see US rates as high as 5.75% in the coming months so a weaker US dollar is certainly not a given and there is plenty of potential for more volatility as we head into the summer months. FOMC minutes later this evening may give an insight into current Fed thinking, particularly in relation to the fears over a full-blown banking crisis.

Meanwhile some ECB officials are sounding more concerned about inflation in Europe. Villeroy said there is a real risk of higher inflation becoming entrenched, more widespread and more persistent. Still see some trade ideas looking for a higher EURUSD. Currently trading at 1.0920

BoC rate announcement today. Rates expected to remain unchanged at 4.5%. Inflation looks like it has eased a bit and economic data hasn’t been spectacular. This should come and go with minimal fuss, if anything though the risk is for a more hawkish meeting either through a surprise rate rise or an upward revision to growth forecasts. USDCAD now 1.3465 for the record.

BoEs Bailey speaks a couple of times today, and early tomorrow morning we have UK GDP where we hope for another tiny shift higher of about 0.1%. GBPUSD has held above 1.2400 since yesterday morning, currently 1.2425, almost bang in the middle of the overnight range.

Elsewhere, China has been rehearsing a full invasion of Taiwan. More muscle flexing perhaps but certainly a show of intent if Taiwan really push the independence issue. China will not let Taiwan go and regular readers will know I do feel we will wake up one morning to find they have taken military action to assert their authority. That won’t be a pretty day. One of those times where I hope I’m wrong.

That’s about all for now. Forecasters got it about right yesterday as our lovely sunshine turned to fairly heavy rain in the afternoon, looks like we should expect more of the same today with some decent winds also coming our way. Enjoy the morning sunshine while you can…..

- 13.30 US CPI

- 13.30 ECBs de Guindos speaks

- 14.00 BoEs Bailey speaks

- 15.00 BoC rate announcement

- 16.00 BoC press conference

- 19.00 FOMC minutes

- 20.15 BoEs Bailey speaks

- 02.00 AUS consumer inflation expectations

- 02.30 AUS unemployment

- 04.00 China trade balance

- 07.00 UK GDP, industrial production

- 07.00 German HICP


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