The US$ & oil prices edge higher, equity markets are up, and US yields strengthen ahead of the US inflation data. Economists expect the US core Personal Consumption Expenditures (PCE) prices to jump in April to 2.9% from 1.8% previous. The Fed is maintaining its narrative of inflation as transitory, but some Fed officials have acknowledged that taper talks may be approaching. US President Biden is to propose his US$6T budget for 2022 today, but markets believe the budget will likely be scaled back by republicans. In the currency markets, the US$ edges higher vs a basket of major currencies ahead of PCE data and the President’s budget. NZD continues to advance on the prospect of higher interest rates into 2022. ZAR eases ahead of the US inflation data while CNY continues to advance having its best week of gains since Nov2021. CNY advances 0.3% while Asian currencies rise 0.15% on average vs US$. Trading currencies remain mixed with JPY down 0.5%, NOK dips 0.1%, MXN drops 0.25%, and ZAR tumbles 0.4% while AUD is up 0.25%, NZD rallies 0.5% vs US$. Intraday US PCE data and President Biden’s budge will be the primary drivers for direction today.
Oil prices edges higher approaching US$70pb for Brent crude as the demand argument outweighs the prospect of Iranian supply coming back online. Supporting the stronger oil scenario are expectations that demand will extend to 100million bpd into the summer as travel demand increases. C$ strengthens from the mid-1.21’s as commodities rebound, but its strength has been limited as it awaits US inflation data. The Canadian government is being advised to relax its border rules for vaccinated travelers as almost 50% of Canadians have their first shot and infections rates are falling nationally. Bias remains to sell US$ on any rallies for longer term C$ strength. Support holds at 1.2045 with key pivot at 1.1916 (May2015) with resistance at 1.2150.
Eur consolidates ahead of the US inflation data. The US$ is benefiting from rising US yields and keeping the Euro on the back foot. US Treasury Secretary Yellen commented she expected to see short term US inflation levels, but the inflation impact will be limited as the economy balances out into H2/2021. ECB Schnabel played down domestic rising yields saying that higher yields are reflective of an improving EU economy. The EU is exiting lockdown measures, is seeing rising inoculations across its population and its economy is rebounding which will provide an underlying support to the Euro. Support lowers to 1.2130, while resistance resets at 1.2250.
EURGBP holds steady ahead of the US inflation data. Over the last 6 months EUR has fallen 4% to GBP and is down 1.3% mtd vs the pound. Support holds to .8585 (1.1650) with resistance remaining at .8700 (1.1495).
GBP holds onto Thursdays gains after the hawkish BoE comments. The pound stalls ahead of the US inflation data in early trading. BoE Vlieghe said on Thursday said the central bank could raise rates into the later part of 2022 but noted a rate hike could come sooner if the economy rebounds quicker than expected. GBP is the 2nd best performing G10 currency up 4% as investors continue to bet on a quicker reopening for the UK economy due to its strong vaccination campaign. Support resets to 1.4120, with key resistance remaining at 1.4235 (Feb2021).