US dollar clings to recent gains as inflation eases
Thursday 11 May, 2023
Daily Currency UpdateThe US dollar holds on to its recent modest gains as the dollar index (DXY) trades near 101.870. New data showed that producer inflation fell more than expected in April, providing further evidence that inflationary pressures are easing and prompting expectations that the fed will soon halt its rate hikes. In the meantime, markets are still reacting to the banking sector crisis and debt ceiling impasse. The USD faces a significant risk due to the impending debt ceiling. Beth Hammack, Chair of the Treasury Borrowing Advisory Committee and Co-Head of Goldman's Global Financing Group, expressed concern over a potential political deadlock regarding the US debt ceiling, emphasizing it as a genuine threat to the USD. Discussions between President, Joe Biden, and top Republican lawmakers are scheduled for Friday. Data released today, by the US Department of Labor, revealed initial jobless claims at 264,000 in the week ending on May 5th. This represents an increase from the 242,000 in the previous week and surpasses the market's expectations of 245,000 claims. The Producer Price Index (PPI) for final demand increased by 2.3% yearly in April. This represents a decline from the previous month’s growth of 2.7%. This is below the market exception for a 2.4% increase.
Key MoversThe EUR continues its downward direction, nearing the 1.0920 level against the USD. This is partially driven by the prevailing bullish sentiment towards the USD. Despite hawkish remarks from rate setters at the European Central Bank (ECB), the EUR/USD pair is unable to maintain any upward momentum. ECB board member, Martins Kazaks, hinted on Wednesday that a rate increase in July may not be the final one, given persistently high inflation levels. Any further movement in the value of the euro is anticipated to closely resemble those of the USD, and is likely to be influenced by divergences in strategies from the Federal Reserve and the ECB concerning interest rate decisions.
The sterling is trading in negative territory reaching new lows for the week, below 1.2550. The GBP dips despite the Bank of England's (BoE) anticipated 25 basis point increase, which brings rates to 4.5%, the highest level since 2008. Simultaneously, the central bank adjusted its inflation projections for a slower decline compared to previous expectations. The BoE has also revised grown forecasts upwards. The combination of these factors shows that the bank no longer foresees a recession, contrasting with the gloomy projections made in February.
USD/CAD surpassed the 1.3415 level and surged to 1.3486, reaching its highest point since last Friday. This was fueled by a widespread strengthening of the USD. Canadian government 10-year bond yields fell 8.5% to 2.821, while the yield on similar US government benchmark debt fell to 3.3583%. Oil trades near 71.460 a barrel after retreating from its weekly peak yesterday. This movement can be attributed to the negative impact of China and US reporting disappointing inflation data, alongside a combination of mixed sentiment and the negative effect of oil inventories on prices.
- EUR/USD: 1.0902 - 1.0994 ▼
- GBP/USD: 1.2506 - 1.2637 ▼
- AUD/USD: 0.6691 - 0.6793 ▼
- USD/CAD: 1.336 - 1.3493 ▲