Dollar Improves after Markets Reactions to Hot Inflation Data
The US dollar was firmer against its major trading partners early Thursday, apart from the yen, ahead of the release of weekly initial jobless claims and natural gas stocks and April producer price data.
Consumer prices rose faster than expected in April even as the year-over-year rate slowed modestly, keeping the pressure on the Federal Reserve to tighten monetary policy further. Weighing the impacts, stocks, cryptos and other markets reacted negatively.
After a busy week, there are no Fed speakers on Thursday’s schedule, but the message this week has been that the Fed will continue to aggressively fight inflation and may need to move rates above the long-term neutral rate for a time, potentially slowing the economy along with inflation.
Most analysts expect another rate increase of 50 basis points at the June 14-15 Federal Open Market Committee meeting, but there are fears that a larger increase of 75 basis points may be needed at some point.
A quick summary of foreign exchange activity heading into Thursday shows that GBP-USD fell to 1.2195 from 1.2247 at the Wednesday US close and 1.2355 at the same point Wednesday morning.
UK GDP rose less than expected in Q1, data released earlier Thursday showed, while the UK trade deficit widened to its largest point since 1997. UK monthly industrial production declined further in March. The Bank of England’s next meeting is scheduled for June 16.
EUR-USD fell to 1.0406 from 1.0514 at the Wednesday US close and 1.0551 at the same point Wednesday morning. There are no EU data scheduled for release on Thursday. Comments from European Central Bank officials suggest a rate hike in July after no change at the June ECB meeting.
USD-CAD rose to 1.3034 from 1.2994 at the Wednesday US close and 1.2967 at the same point Wednesday morning, as the US dollar got a boost from risk aversion. There are no Canadian data scheduled for release on Thursday.
The Bank of Canada is expected to raise rates by 50 basis points at its next meeting on June 1, with an outside chance of a larger increase. READ: “Nigeria pays more on Eurobond than other African countries”
USD-JPY fell to 128.56 from 129.9816 at the Wednesday US close and 129.7737 at the same point Wednesday morning as investors turned risk-averse. There are no Japanese data scheduled for release on Thursday.
The Bank of Japan is expected to keep interest rates low for an extended period, in contrast to other major economies.#Dollar Improves after Markets Reactions to Hot Inflation Data