US Open Note - US CPI beats expectations and rises by 8.3%; dollar moves up again



The CPI rate ticked up by 8.3% in the year that ended in April. The annual CPI decrease was the first since August, but it was the eighth month in a row of gains of more than 6%. In March, the Consumer Price Index (CPI) rose 8.5% year-over-year, the highest increase since December 1981. After the release of higher-than-expected CPI figures, the dollar initially rose.  The dollar index is showing positive signs as it jumped beyond 104.00; however, US futures are leading lower, suggesting a negative open.

On Tuesday, President Joe Biden acknowledged the suffering that rising inflation was causing American households and stated that reducing costs is his top domestic concern."

The Fed hiked its policy interest rate by 0.5% points last week, the largest increase in 22 years, and announced that it will begin reducing its asset holdings next month. In March, the U.S. central bank began hiking interest rates.

Brexit back on the table

The subject of Brexit is once again making headlines. Officials from the United Kingdom have threatened to take unilateral action in Northern Ireland once more. Foreign Secretary Liz Truss, the UK's top Brexit negotiator after Lord Frost's resignation last year, warned that the government "would not shy away from taking action [if] solutions cannot be found." According to reports, Truss has prepared legislation that would empower the United Kingdom to unilaterally discard substantial portions of the Brexit deal, removing the need for checks on goods moved from the United Kingdom to Northern Ireland and allowing the United Kingdom to disregard EU standards. Despite European Commission vice-president Maros Sefcovic's warnings that "renegotiation is not a possibility," he and Truss are scheduled to meet again Thursday.

Against a declining dollar, the pound gained ground and was hardly changed against the euro on Wednesday. The market is expected to begin to reduce its expectations of a hawkish Bank of England policy and the uncertainty surrounding the British economy.

The year-end rate hike forecast for the Bank of England has dropped to roughly 105 basis points (bps), down from 120 bps late last week and 145 bps at the end of April.

Euro consolidates near 1.0550

ECB President Christine Lagarde said earlier today that the bank's bond-buying stimulus program will likely conclude in the third quarter, followed by a rate hike "a few weeks" later. Lagarde reaffirmed market expectations that the ECB will hike its policy rate for the first time in over a decade in July to combat record-high euro-zone inflation caused by rising energy costs.

Most other major central banks have hiked borrowing costs, but the ECB, which has battled excessively low inflation for a decade, is still buying bonds.

The euro is still moving within a tight range and is flirting with the $1.0550 level.

Commodity currencies re-gain ground

The aussie and the kiwi bounced off their lowest levels in July 2020 and May 2020 respectively, while the loonie found strong resistance at the 200-weekly simple moving average (SMA).

Oil is moving higher, meeting $103.00 again, while the yellow metal rebounded off the 200-day SMA near $1,835 and the long-term ascending trend line.

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