The USD steadies, oil prices slip, and equity markets & US yields are mixed as markets await another inflation report. The USD holds onto Wednesday's gains, the US treasury 10-year tested 4.56%, and equity markets remain under pressure after the US CPI beat forecasts for a third month. Wednesday's hot US CPI report has caused investors to reevaluate the possibility of three interest rate cuts in 2024. The FOMC minutes released on Wednesday highlighted that some Fed officials remain concerned that inflation levels are not achieving the bank's 2% goal. Former Treasury Secretary Summers said, "Take seriously the possibility that the next rate move will be upwards rather than downwards" in an interview with Bloomberg. Elsewhere, Gold steadies after weakening on the stronger US CPI report. Oil prices slip despite the potential attack on Israel by Iran or its proxies. Copper prices strengthen, Zinc prices near one-year highs, and Bitcoin advances above $70k. In focus today, the ECB Monetary Policy Statement, US Initial Jobless Claims, US PPI ex Food & Energy, and speeches from BoE Greene, Fed's Collins, Williams & Bostic, as well as the ECB press conference will help provide intraday direction to the currency markets.
In other news. Biden says US support for Israel "ironclad' as Iran threats increase. Vietnam tycoon Lan sentenced to death over $12 billion fraud. Singapore's largest property deal of 2023 falls apart on a regulatory snag. Foreigners have bought the most Japanese stocks since 2013 on earnings bets. Lufthansa reaches a wage accord with cabin crew, averting strikes. Weak China inflation data fuels concern over consumer demand. The US & Japan announced the "most significant" upgrade to the military alliance. Air Canada resumes flights to Israel after a six-month pause due to the Israel-Hamas war.
In currency markets. CNY drops to a 5-month low, while JPY tumbles to 1990 levels vs USD. The prospect of fewer rate cuts in the USD and the prospect of higher rates for longer has seen the USD Index rally to fresh 5-month highs. CNY is down by 0.1%, while Asian currencies are flat on average against the USD. Trading currencies are mixed, with ZAR tumbling 0.55%, MXN weakening 0.45%, SEK falling 0.25%, NOK, JPY, CHF & NZD are flat, and AUD firming 0.15% vs USD.
In commodity markets. Oil, Soybean & Silver prices slipped by 0.15%, Natural Gas and Gold prices are flat, Copper prices weakened by 0.5%, and Wheat prices are up by 0.1%.
CAD holds at near 5-month lows vs USD after investors saw US inflation levels continue to run hot, and the BoC took a more dovish approach to interest rates. The BoC kept interest rates on hold yesterday. Still, the BoC Governor Macklem said that a cut in interest rates is possible as early as June if the recent cooling trend in domestic inflation levels is sustained. The potential of US & CAD divergence in interest rate policy is likely to keep the loonie under selling pressure and increase the possibility of a test of 1.4000 by the end of Q2 is possible. Intraday, the US PPI data will be a crucial driver for the loonie today.
EURCAD holds steady ahead of the ECB interest rate decision today.
EUR struggles to hold above 1.0700 heading into the ECB policy meeting. The ECB is widely anticipated to maintain its key interest rates today for a 5-month. Unlike the US, the EU is facing deflationary pressure and economic weakness and could enter a prolonged recession under current economic conditions. President Lagarde is widely expected to signal that the possibility of easing will start in June, with inflation levels moving closer to the 2% target. If we see a dovish ECB and another strong print in US inflation data, we could see the Euro weaken through 1.0700, with the potential of a test of 1.0500.
GBPEUR firms, erasing the pound's losses in April, opening up a retest of 1.1800 if the ECB takes a dovish tone today.
GBP stalls above 1.2500 as investors await another crucial US inflation report today. The pound is finding some support from BoE's Greene's hawkish comments, but investors remain wary ahead of the US PPI inflation data out this morning. BoE Greene told the FT that the "UK services inflation remains much higher than in the US." Domestically, investors will focus on Friday's UK GDP, industrial production, and manufacturing production to provide insight into the UK's economic condition. The intraday focus will be on the US producer price index, ex-food & energy, to provide intraday direction to the pound.
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