The US$ edges higher, oil prices weaken, equity markets are down, while US yields are mixed ahead of the US inflation report today. Currency markets are sidelined, while equity markets fell as investors awaited the US inflation report for insights on the Federal Reserves next steps on interest rates. If the CPI (ex food & energy) data drops below 5.5% we would likely see equity markets strengthen and the US$ could ease as the data may lay the ground for a pause to Fed tightening. Markets are also on guard to risk from the standoff in US debt talks which failed to make any movement on Tuesday. US leaders are expected to resume discussions on Friday as Washington scrambles to lift the debt ceiling with less than a month before the federal government is set to run out of money. Today the US Consumer Price Index is key data release, while later in the afternoon the US Monthly Budget Statement & more corporate earnings including Disney.
In other news. US inflation expected to have remained stubbornly high in April-FT. Tokyo targets 10% profit jump, robust EV sales as chip woes recede. Biden, McCarthy divided over the debt ceiling but talks to continue-Reuters. The ECB must be "extremely attentive" to factors that may fuel inflation further such as wage growth, Lagarde told Japanese daily Nikkei. Japan to host G7 finance leaders' meeting May 11-13, with China & US debt woes likely to dominate G7 finance chiefs' talks. Allkem to buy US lithium producer Livent Corp to create $10.6 bln firm.
In currency markets. The US$ is seesawing in early trading rattled by debt ceiling impasse, but cautious heading into the US CPI report. CNY remains on the back-foot on growth concerns & widening interest rate differential. ZAR drops to 3-year low on scheduled blackouts known as loadshedding fears worsen heading into winter. CNY dips 0.1%, while Asian currencies are flat on average vs US$. Trading currencies are mixed with ZAR weakens 0.5%, SEK falls 0.15%, AUD down 0.1%, while CHF is flat, MXN, JPY & NZD are up 0.1%, NOK gains 0.4% vs US$.
Oil prices fall over 1% ending a 3-day rally after the unexpected rise in US oil inventories sparked demand concerns and investors are sidelined ahead of the US inflation report. C$ holds steady near 1.3400 vs US$, consolidating recent gains as investors await the US inflation data for clues on the Fed's interest rate outlook. Market sentiment is turning a little more bearish for C$ as net shorts increase on the US Commodity Futures Trading commission data, which is supported by weaker commodity prices and falling Canadian bond yields. All focus is on the CPI report to provide intraday direction to currency markets today. Support holds at 1.3340 while resistance remains at 1.3450.
EUR/CAD holds steady heading into the US inflation report, month-to-date we have seen C$ rally near 1.75% vs Euro as markets see the possibility of the BoC reviewing their interest rate pause strategy after stronger-than-expected jobs data last week. Support sits at 1.4640 while resistance lowers to 1.4750.
EUR steadies near 1.0950 ahead of US CPI data. The Euro remains on the back-foot weighed by the resurgent US$ demand on increasing risk-off sentiment and caution into the critical US CPI data release. Domestically ECB President Lagarde maintains her hawkish comments on the central banks focus to fight inflation, stating that the focus remains on continuing high wage growth. US CPI is anticipated to ease slightly from 5.6% in March to 5.5% in April, a print outside of expectations is expected to increase market volatility. Support resets to 1.0900 while resistance lowers to 1.1000.
GBPEUR continues to edge stronger, up 1% in May and almost 2% year-to-date as investors await the BoE rate decision on Thursday. Support sits at 1.1475 while resistance rises to 1.1580.
GBP holds steady near 1-year highs ahead of US inflation data. The pound holds steady above 1.2600 heading into the US inflation report as the dollar finds fresh demand amid an increasing cautious market mood. The pound slips off its 1-year highs, but overall holds steady as investors are balancing the US CPI report ahead of the BoE interest rate decision. With inflation holding over 10% some analysts are taking a more hawkish stance with expectations that the BoE could hike as much as 50bps based on recent UK data. Intraday US CPI report will be the primary driver to markets. Support holds at 1.2570 while resistance remains at 1.2680.
The US$ is steady, oil prices weaken, equity markets are down, while US yields are mixed as risk sentiment stalls.
The US$ firms, oil prices rally, equity markets are up, US yields are higher in a cautious start to the week.