US Inflation Report Gives No Support to the Dollar

Market Reviews

US currency was not supported by inflation data. US consumer price inflation accelerated in March, underlining the case for a faster pace of monetary tightening by the Federal Reserve. The US Labor Department said consumer inflation rose by an annualized 2.4% in March, up from 2.2% in the previous month. The reading matched the consensus forecast. Core CPI was at 0.2% mom and 2.1% yoy. Headline CPI fell by 0.1% mom in March, below expectation of 0.0% mom.

British pound pares some gains after disappointing data. Industrial production rose 0.1% mom, 2.2% yoy in February, below expectation of 0.4% mom, 2.9% yoy. Manufacturing production dropped -0.2% mom, rose 2.5% yoy, below expectation of 0.2% mom, 3.3% yoy. Construction output dropped -1.6% mom in February versus expectation of 0.7% mom. Visible trade deficit narrowed to USD -10.2b in February versus expectation of GBP -11.9b.

The euro rose against the US dollar on the backdrop of ECB President Draghi's statements. Mario Draghi said he is confident that inflation will rise to the target level of the ECB. Also, the head of the ECB added that salaries and inflation will grow as the economy recovers. Draghi noted that closer integration will allow the EU to solve economic problems, since the EU can not solve its problems at the national level.

The US Federal Reserve will release minutes of its last meeting, which may provide further hints on the pace of future rate hikes this year. The US central bank raised interest rates as widely expected following its meeting on March 21 and stuck to its projection for two more rate hikes this year. Fed Chief Jerome Powell said last week the Fed will likely need to keep raising interest rates this year to keep inflation under control. His comments signaled that borrowing costs will continue to climb this year despite the recent market volatility caused by the trade dispute. Traders are currently pricing in around a 90% chance of a rate hike in June.

IMF Managing Director Christine Lagarde expressed her optimism on the global economy, during a speech at Hong Kong University.