Talking Points:
- The US Dollar has given up its earlier gains after both March UK CPI and Eurozone CPI missed expectations.
- Despite a cooling of geopolitical tensions - from Syria to North Korea - Gold continues to churn higher.
- Sentiment for the US Dollar remains mixed following a volatile few days.
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The US Dollar (via the DXY Index) has retreated after posting earlier gains around the release of UK price data and the final Eurozone CPI report for March. With respect to the former, each of the UK's March CPI, PPI, and RPI missed expectations, giving traders a reason to take profits on what has been an exuberant British Pound for most of 2018.
But the UK inflation data still suggest that price pressures are running too high for an economy facing stagnant wage growth. Amid a tight labor market, today's figures have done little to chance the consensus (per overnight index swaps) that the Bank of England will be raising rates by 25-bps in May, and will likely do so again at its November policy meeting (when the final Quarterly Inflation Report of 2018 is released).
Elsewhere, amid a quiet economic docket out of the United States - focus is on more Fed speakers today and the Beige Book release at 14 EDT/18 GMT - attention turns to the Canadian Dollar.
The Bank of Canada will leave its main interest rate on hold at 1.25% when it meets today, according to economists surveyed by Bloomberg News. While Canadian economic data has been steady – notably inflation and labor market reports that would point to a more hawkish BOC – the overhang of the NAFTA negotiations has unleashed uncertainty over the near-term horizon.
Despite seeing odds near 80% at the beginning of February for another 25-bps rate hike in the first half of 2018, rates markets are now pricing in less than a 30% chance of a rate move by the BOC’s May meeting. The BOC will likely wait until the NAFTA negotiations have concluded before moving on rates again.
See the above video for technical considerations in the DXY Index, EUR/USD, GBP/USD, USD/JPY, EUR/CAD, USD/CAD, and Gold.
Read more: DXY Index Recoups Overnight Losses on Weak Data out of Europe
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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