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USD fluctuates as US inflation boosts Fed rate expectations

currency-newsUSD fluctuates as US inflation boosts Fed rate expectations
The US dollar briefly struck higher on Friday as USD investors welcomed another strong US inflation reading.
 
Sterling looks to be consolidating these gains so far this morning, with GBP/EUR stable at €1.1624 and GBP/USD rangebound at $1.4228. GBP/CAD is rangebound at C$1.7123, while GBP/AUD and GBP/NZD tick up to AU$1.8324 and NZ$1.9533, respectively.
 
Looking ahead, will a strong Eurozone inflation reading help propel the euro higher this morning?
 

What’s been happening?

The US dollar sought to close last week’s session on a positive note following the publication of the latest PCE price index.
 
The Federal Reserve’s preferred indicator of inflation printed above expectations in April, prompting some USD investors to revise their Fed rate hike expectations.
 
However, the US dollar relinquished most of its gains by the end of the session as optimism over Joe Biden’s budget proposal buoyed market sentiment and sapped demand for the safe-haven US dollar.
 
This jump in the US dollar came at the expense of the euro, due to the negative correlation between the pairing, although the single currency tempered its losses thanks to the Eurozone’s latest economic sentiment index printing at a three-year high in May.
 
However the euro then struck higher on Monday following a higher-than-expected consumer price index from Germany.
 
The pound, meanwhile, continued to enjoy the tailwinds from Thursday’s hawkish comments from the Bank of England’s (BoE) Gertjan Vlieghe, which alongside some positive coronavirus headlines, helped to prop up support for Sterling on Friday.
 

What’s coming up?

The main focus this morning will be on the Eurozone’s CPI figures. These are expected to report that inflation in the bloc continued to accelerate last month, but any impact on the euro could prove limited in light of the European Central Bank’s (ECB) current dovish bias.
 
Also set for release this morning will be the UK’s finalised manufacturing PMI for May, which may extend some support to the pound if growth in the factory sector expanded more than expected last month following the reopening of more of the economy on 17 May.
 
Closing out today’s session will be the ISM manufacturing PMI, with the US dollar potentially strengthening as economists predict it will report another strong month of growth in the US factory sector.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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