Dollar Eases as Sentiment Improves Ahead of US CPI
11 May 2022
The dollar fell slightly in early European trade Wednesday, but it remains around a two-decade peak prior to the release of critical inflation data that might affect Fed policy.
At the time of writing, the EURUSD pair has still traded above the critical 1.05 support as bears are starting to appear exhausted.
“Low-yielding currencies, including the pro-cyclical euro and pound, seem to be finding some favor from the markets, although prolonged market volatility and instability in sentiment look unlikely to generate any other winners outside of the dollar,” said analysts at ING, in a note.
Later today, ECB President Christine Lagarde is due to deliver opening remarks at the conference to mark the 30th anniversary of the Bank of Slovenia in Ljubljana.
However, the most focus will be on today's US inflation data for April, projected to decelerate to 8.1% on a yearly basis from 8.5% in March. If inflation slows slightly, it might be a relief signal for the markets, likely causing a rally in stocks and bonds, while the USD might decline.
US speakers trying to calm the markets
US President Joe Biden said on Tuesday that the Federal Reserve is focused on managing inflation and that his government is considering removing Trump-era tariffs on Chinese imports to reduce prices.
Additionally, after boosting the policy rate by 50 basis points in June and July, Cleveland Fed President Loretta Mester indicated on Tuesday that the Fed would have to evaluate what further is required.
"I would say that (a 75-basis-point rate hike) is a low probability outcome given what I expect will happen in the economy over the next three to four months," Atlanta Federal Reserve President Raphael Bostic said in an interview earlier this week.
It looks like the 75 basis-point rate hike would not happen, especially if today's inflation data show a slight decline from March values.
Elsewhere, global shares rose Tuesday and Wednesday following recent losses, as investors worried that rising inflation would lead central banks, including the Federal Reserve, to raise interest rates aggressively, heightening the risk of a global recession.