US Open Note – US CPI surprise driving dollar higher; Lagarde comments hurt euro

US CPI spike higher than expected

Consumer prices in the United States were closely watched today for any clues about a tapering timeline. The headline CPI rose by 5% year-on-year for May, driving the dollar higher. This figure is the highest number since August 2008 amid low base effects from last year. The annual core CPI accelerated to 3.8% from 3.0% while the monthly rate ticked slightly down to 0.7% versus 0.9% previously. The Fed is anticipated to take baby steps towards slowing its bond purchases and the recent moves higher in bond yields might reduce the fallout from such a decision.

However, while there are plenty of surprises in US data lately, the numbers are backing the Fed’s viewpoint that unemployment will take time to return to pre-pandemic levels and that the price hikes are being driven mainly by transitory factors.

Dollar/yen is now holding near its opening level around 109.60, while the US dollar index is hovering marginally above the 90.00 round number. S&P 500 and Nasdaq futures are signaling a negative open; however, Dow Jones futures are suggesting a positive open.

ECB confirms its accommodate monetary policy

The European Central Bank (ECB) left its key rates steady earlier today, and the PEPP is expected to continue increasing at a higher pace at least until the end of March 2022. The interest rates are predicted to be unchanged until the inflation rate is back close to 2%. The ECB reaffirmed the size of PEPP at €1.85 trillion and APP of €20 billion per month. Investors tuned into Lagarde’s news conference for the bank's latest projections about economic growth and inflation.

Euro/dollar initially posted a minor spike to the upside but returned quickly to the downside and is currently unchanged overall, remaining around the 20-period simple moving average (SMA). Euro bulls may have been disappointed from the statement; however, it was in line with the expectations.

In the UK, Boris Johnson is worrying about the rise in coronavirus cases over the last few days as a further easing of restrictions is planned in coming days. Pound/dollar is experiencing some losses beneath the 1.4100 handle, and pound/yen is posting a negative move.

Antipodean currencies remain calm

Dollar bears were pushing aussie and kiwi to intra-day highs, meeting the $0.7740 and $0.7120 respectively, while dollar/loonie is keeping the flat structure near $1.2110.

Elsewhere, WTI futures are rising above $70/per barrel again, while gold prices are posting losses and are well below $1,900/per ounce.

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