NZD outperforms as all eyes turn to US inflation and central bank

Key Movers

The euro continues to underperform, giving up more ground through trade on Tuesday amid ongoing political uncertainty. The single currency slid below US$1.0750, giving up 0.2% on the day and trading as low as US$1.0720. French equities continued their slide and a distinct risk-off mood enveloped markets as traders questioned whether Macron could hold onto the Presidency if his support is eroded at the June 30 election. Having traded near US$1.09 leading into last week's US non-farm payroll print the euro has suffered a swift and precipitous correction and we expect volatility will continue through this month and leading into the election.
The pound is also on the back foot, following softer than expected labour market data. While wage data showed a jump in the quarterly numbers an increase in the unemployment rate and jobless claims drove calls for the Bank of England to move and cut rates sooner. Market odds are now pricing a near 45% chance of a rate cut by August, up from 36% before the print.
With the USD enjoying early risk-off gains before trading flat for the day our attention turns to tonight’s all-important US CPI inflation print and FOMC policy update. We anticipate inflation should continue to fall as oil and energy prices ease and a print near 3.5% should afford markets some comfort that disinflationary forces are still in play. We expect the Fed will leave rates on hold and our attention will turn to the Fed’s updated dot plot and accompanying rate statement for guidance and direction.