USD weaker despite Inflation surge
The US dollar is trading relatively lower against its rivals despite better-than-expected inflation numbers. Official data released on Thursday reported that US annual CPI inflation climbed to its highest level in 13 years. Headline inflation accelerated to 5% in May from 4.2% in April, above market forecasts of 4.7%. It is the highest reading since August 2008. The core inflation rate also climbed to 3.8% for the first time since 1992.
The dollar index has fluctuated narrowly around the 90 levels and was last down by nearly 0.5% for the week. DXY is hovering around its 5-months low ahead of the FOMC meeting. FED officials are scheduled to conclude their 2-day meeting on Wednesday and investors are curious how the committee will react to the recent robust economic performance.
Separate reports showed that the number of initial jobless claims fell by 376,000 to its lowest since mid-March 2020, the beginning of Covid-19 spread, and near its 15-month low.
Mixed economic figures are closely watched by investors to assess how they would mean for the Fed policy as inflation pressures persist while the labor market is still on the recovery path. The Fed has been reiterating that price pressures are transitory and that higher inflation could be tolerated for some time. However, persistent inflation would force the FED to reduce its bond purchases earlier than expected although a rate hike may not be expected before 2023.
Euro steady as ECB stick to Bond-buying
The European Central Bank decided to maintain its bond purchases’ pace while upgrading its forecasts for eurozone growth and inflation. ECB extended its pandemic emergency purchase programme three months to September with a significantly higher pace than during the first months of the year as the bank is expecting that price growth will fade again next year.
ECB president Christine Lagarde said in a press conference that any tightening of monetary policy would be premature at this stage as it would threaten the recovery and the outlook for inflation.
ECB upgraded its projections for both inflation and GDP. The bank now is expecting CPI inflation to rise to 1.9% in 2021, 1.5% in 2022 while 2023 inflation remains at 1.4%. The projection for 2021 GDP came at 4.6%, 2022 GDP at 4.7% and 2023 GDP at 2.1%.
Euro was traded mostly lower against US dollar and sterling pound on Thursday. EURUSD was last traded lower at 1.2117, while keeping weekly gains of 0.35%. EURGBP retreated by 0.47% around 0.8590.
CAD hold gains as BoC stays on track
The Canadian dollar is traded at its YTD highest levels against its American rival as BoC stays on track for policy tightening. The Canadian dollar held around 1.21 against the greenback, following the Bank of Canada’s decision to leave interest rates and the pace of the quantitative easing program unchanged. The Bank of Canada was the first among advanced economies to slow the pace weekly of government bond purchases, now traders expect the next taper move to be taken in July monetary policy meeting.
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