US inflation pressures persist ahead of Fed rate decision
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Daily Currency Update
On Friday, the latest Personal Consumption Expenditure (PCE) reading from the US was unveiled, revealing a modest overshoot for March. The closely watched report showed that the monthly core reading, which excludes the cost of food and energy, rose by 0.3% compared to February, aligning with estimates. However, on an annualized basis, the core reading held steady at 2.8%, defying predictions of a slight decrease. The overall reading, including food and fuel, increased to 2.7% from 2.5%, slightly surpassing expectations.As a result, GBP/USD fell from around 1.25 to 1.2440 on Friday afternoon, with EUR/USD following suit, dropping from 1.0720 to bottom out around 1.0675 as dollar strength permeated the markets. This PCE number lends weight to the argument that the Federal Reserve will need to maintain higher interest rates for a longer period to address persistently sticky inflation.
Wednesday night's rate decision from the Fed will receive significant attention, particularly in light of the recent consecutive increases in the Consumer Price Index, which have elevated the benchmark reading to 3.5% year-on-year. While no change in borrowing costs is almost certain, the future trajectory of policy will be the primary focus, with some market participants now suggesting that the next move could be a rate hike.
Key Movers
We're expecting the latest CPI estimate from the Eurozone tomorrow, with the overall reading anticipated to remain at 2.4% year-on-year. Beyond that, it's a relatively quiet week from both the Eurozone and the UK, with little noteworthy data scheduled.However, the US compensates for this quietness, particularly with the aforementioned Federal Reserve rate decision scheduled for Wednesday, followed by the release of monthly jobs data on Friday. The headline Non-Farm Payrolls figure for April is projected to be 243k, with the unemployment rate expected to remain steady at 3.8%.
Following Friday's dollar gains, the currency has retraced some of its strength, leading to GBP/USD rising back to around 1.2525 and EUR/USD climbing back above 1.07. Additionally, GBP/EUR is inching closer to the 1.17 mark, currently hovering around 1.1690.
Expected Ranges
- GBP/USD: 1.2455 - 1.2580 ▲
- GBP/EUR: 1.1660 - 1.1730 ▲
- GBP/AUD: 1.9040 - 1.9200 ▼
- EUR/USD: 1.0675 - 1.0755 ▼