US Dollar Lower on CPI Data, Pound Dives After BoE Statement

Market Reviews

US dollar weakened versus major currencies after weaker-than-awaited CPI data. US Labor Department reported that consumer price inflation rose by an annualized 2.5% in April, from 2.4% in the previous month. Core CPI, a key gauge of underlying consumer price pressures that excludes food and energy costs, rose 2.1% year-on-year. Economists awaited for a gain of 2.2%. Month-on-month, CPI rose 0.2%, against forecasts for a reading of 0.3%, while core CPI rose 0.1% from a month earlier.

Also from US, initial jobless claims was unchanged at 211k in the week ended May 5 (the lowest level in 49 years for the second straight week). Four-week moving average fell by 5.5k to 216k, touching the lowest level since December 1969. Continuing claims grew by 3k to 1.79m in the week ended April 28.

The British pound declined after the Bank of England did not give surprises and kept the interest rate at the previous level of 0.5%. The Bank of England still expects that the key interest rate will grow in the coming years. The central bank of Great Britain also said that the slowdown in the growth of the UK economy in the Q1 was probably temporary and was not as strong as it was thought.

The UK Central Bank also lowered its forecast for GDP growth in 2018 to 1.4% from 1.8%. Lowering the forecast combined with the weakness of the latest data could mean that the central bank will not tighten monetary policy as much as some investors had expected, even though it announced its intention to raise rates three times in the next three years.

Today’s economic data from the UK also showed, visible trade deficit widened to GBP -12.3B in March, from GBP -10.2B versus expectation of GBP -11.4B. Industrial production increased by 0.1% mom, 2.9% yoy in March, versus expectation of 0.2% mom, 3.1% yoy. Manufacturing production fell by 0.1% mom, but grew by 2.9% yoy in March, versus expectation of -0.2% mom, 2.9% yoy. Construction output decreased by 2.3% mom in March versus expectation of -2.2% mom. NIESR GDP estimate grew 0.1% in April.

It is reported, that Chinese Vice Premier Liu He will visit Washington next week to resume trade negotiations with the US. Gao Feng (China’s Commerce ministry spokesman) stated that China’s position in trade negotiations has not changed and will not change. China opposes protectionism and unilateralism in trade relations.