11 May 2022 – Daily FX Update

OVERVIEW

U.S. CPI data today

Inflation data pressure the gold

FOREX

U.S. Dollar Index

The dollar hovered near a two-decade high against major peers on Wednesday, ahead of a key inflation data that should provide clues on how aggressive the Federal Reserve will be in tightening monetary policy.

The dollar index slipped slightly to 103.81 but is still near the highest since December 2002.

Investors will be closely watching the April U.S. consumer price index reading later on Wednesday for any sign’s inflation may be starting to cool, with expectations calling for an 8.1% annual increase compared with an 8.5% rise recorded in March.

In Europe

The Bank of England (BoE) hiked its policy rate by 25 basis points. However, BOE has stuck to its dovish outlook in many ways. Meanwhile, sterling struggled near a 22-month low at $1.2262 from the start of the week, last trading 0.1% higher at $1.2334.

The euro rose a touch to $1.05405 but has traded sideways since hitting a five-year low at $1.04695 at the end of last month. The release of the U.S. consumer price index for April will be the day’s main event. The index is expected to have fallen to 8.1% on the year from 8.5% the previous month.

Elsewhere

The yen continued to get some respite from a pause in the recent relentless rise in benchmark U.S. Treasury yields, trading little changed at 130.36 per dollar, after dipping to a more than two-decade low of 131.35 on Monday.

The Aussie climbed 0.25% to $0.69595 on Wednesday, after touching a 22-month trough of $0.6911 earlier in the week. While the kiwi gained 0.22% to $0.63075 but remained not far from the previous session’s nearly two-year low of $0.6277.

Indices

U.S. Indices

Wall Street closed higher yesterday as investors are waiting for inflation data and worried about the possibilities of slowing economic growth and the impact of policy tightening.

U.S. Treasuries rallied, with the yield on the benchmark 10-year note tumbling from a three-year high to below 3% as investors reassessed the inflation outlook before U.S. consumer price index (CPI) data is released Wednesday.

After turning red a few hours earlier in the session, the S&P closed up slightly while Nasdaq added almost 1%. The Dow Jones Industrial Average fell 0.26% to 32,160.74, the S&P 500 gained 0.25% to 4,001.05 and the Nasdaq Composite added to 11,737.67.

European Indices

European equities rebounded Wednesday after recent losses on concerns that soaring inflation will prompt central banks and the Fed, in particular, to boldly hike interest rates, increasing the potential for a global recession. The DAX in Germany traded 0.2% higher, the CAC 40 in France rose 0.7%, and the U.K.’s FTSE 100 climbed 0.4%.

Earlier Wednesday, China’s factory and consumer prices accelerated faster than expected in April, as COVID lockdowns disrupted supply chains. The consumer price index rose 2.1% year-on-year, while the producer price index rose 8% year-on-year. German CPI also climbed 7.4% on the year in April, up from 7.3%, and a rise of 0.8% on the month, compared with a gain of 2.5% in March.

Asian Indices

Asia Pacific stocks were mostly up on Wednesday morning, and U.S. equity futures were also on an upward trend. Investors are considering the latest inflation data from China while also awaiting U.S. data that could provide clues as to whether inflationary pressures are peaking.

China’s Shanghai Composite rose 1.43%, and the Shenzhen Component jumped 1.57%. Data released earlier in the day showed that the consumer price index (CPI) for April 2022 grew 0.4% month-on-month and 2.1% year on year. The producer price index (PPI) also rose 8% year on year.

Hong Kong’s Hang Seng Index rose 1%.

Japan’s Nikkei 225 was up 0.37%, while the Australian ASX 200 edged down 0.14%, with the Westpac Consumer Sentiment index for May 2022 contracting 5.6%, a much bigger drop than the previous month’s 0.9% contraction.

Metals

Gold was down on Wednesday morning in Asia, hitting its lowest level since February 11, as investors eyed the rising dollar and inflation data.

As investors expect additional increases of the same magnitude from the Fed, they await the U.S. Core CPI, due later in the day, for more clues on the Fed’s monetary policies. The forecasts prepared by Investing.com expected the figure to moderate but stay above 8%. Gold futures were down 0.22% to $1,836.96.

About other metals, silver dipped 0.1%. Platinum edged up 0.1%, while palladium fell 1.2%.

Crude Oil

China’s factory and consumer prices accelerated faster than expected in April, as COVID lockdowns disrupted supply chains. The consumer price index rose 2.1%, while the producer price index rose 8%. German CPI also rose 7.4% in April, up from 7.3%.

Oil prices bounced after slumping around 9% over the previous two sessions, with the market caught between the collapse of Chinese demand and the restriction of Russian supply.

The American Petroleum Institute reported U.S. crude stockpiles rose by 1.62 million barrels last week. U.S. crude futures traded 2.4% higher at $102.14 a barrel, while the Brent contract rose 2.5% to $104.98.