Trump turmoil tarnishes Dollar
UK consumer prices rose 0.5% in April, with the year-on-year inflation rate rising to 2.7% from 2.3% previously; the highest since June 2013. The core CPI rate increased to 2.4% from 1.8% and also above consensus expectations of 2.2%. The data initially boosted the Pound before almost immediately spiralling lower.
The late timing of Easter this year skewed year on year comparison is naturally skewed to the upside. The 18.6% increase in air fares, which largely contributed to the rise in transport prices, is a clear indication of this. The Bank of England will likely have seen the data before making growth forecasts and made its rate decision last week, so from a monetary policy perspective, probably little has changed.
Today’s UK employment reports are expected to show a slight increase in the hourly earnings. Stronger data is unlikely to have a lasting effect, while even a slight disappointment could trigger a fresh leg of a corrective slide.
The Eurozone Q1 GDP grew by 0.5% with annual growth of 1.7%. The German ZEW investor confidence index was below consensus forecasts at 20.6 for May from 19.5, but was offset with a strong, consensus-beating current-situation reading.
Confidence in the Eurozone outlook continued to improve amid hopes for constructive treaty reform, supported by Angela Merkel. The CME futures market show a reduction in short Euro positions this year, moving last week to the first net long position since 2014. The easing of political and economic concerns was an important factor in triggering fresh inflows into the Eurozone which provided net currency support. Given the turmoil across the pond, this could well be the Euro’s chance to shine again.
The Greenback dropped against a majority of its peers yesterday due to continued political turmoil after President Trump was alleged to have disclosed classified information to Russian officials. The release of weaker-than-expected U.S. housing starts and building permits also weighed on the Dollar.
Tracked by the US Dollar Index (the value of the United States Dollar relative to a basket of foreign currencies), the buck continues to give ground this morning amidst Trump woes. The index has retreated to levels last seen in early November, fully retracting from the post-US election rally and trading negatively for the fifth day in a row. The Trump-FBI dispute weakened the Dollar index, prompting market participants to wonder whether a fresh bearish trend has emerged around the buck.
In the meantime, the likelihood of further tightening by the Federal Reserve at its June meeting seems to have been eclipsed so far by headlines involving President Trump and the possibility of his impeachment. This comes amidst the backdrop of declining US yields and the continuation of the sell-off in USD. On the data front, the usual weekly report of the DoE on US crude oil inventories is due later today.
Data to Watch:
8:00am EUR Non-monetary policy’s ECB meeting. 9:30am GBP Claimant Count Rate (Mar), ILO Unemployment Rate (3M) (Mar), Average Earnings including Bonus (3Mo/Yr) (Mar), Claimant Count Change (Apr), Average Earnings excluding Bonus (3Mo/Yr) (Mar). 10:00am EUR Consumer Price Index (MoM) (YoY) (Apr), CPI – Core (MoM) (YoY) (Apr). 3:30pm USD EIA Crude Oil Stocks change (May 12)