The US dollar remained well supported on Friday, with the currency continuing to catch bids in light of the Federal Reserve’s recent hawkish shift.
Sterling opens today’s session on the front foot, with GBP/EUR buoyed at €1.1649 and GBP/USD steady at $1.4136. GBP/CAD is rangebound C$1.7092, while GBP/AUD and GBP/NZD have climbed to AU$1.8103 and NZ$1.9532, respectively.
Looking ahead, the latest US CPI figures will be centre stage today. Will a worrying rise in inflation weigh on the US dollar?
What’s been happening?The euro came out on top during yesterday’s trading session as EUR investors cheered the latest German ZEW economic sentiment index.
May’s release saw the index soar to 84.4, with optimism over the decline in new coronavirus cases and the acceleration of the EU’s vaccine rollout propelling economic sentiment to its highest levels in over 21 years.
The pound, meanwhile, consolidated its recent gains on Tuesday as Boris Johnson’s confirmation on Monday that more of the UK economy will be allowed to reopen from next week helped to bolster economic optimism.
At the same time, the US dollar was on the defensive yesterday in spite of a prevailing risk-off mood, as the ‘Greenback’ continued to suffer as a result of Friday’s dire payroll reading and concerns it will reinforce the Federal Reserve’s current dovish bias.
What’s coming up?Kicking off today’s session was the preliminary release of the UK’s first quarter GDP figures.
These have provided another leg up to the pound this morning, after they revealed a smaller-than-expected contraction of growth at the start of 2021 following a solid expansion of growth in March.
Also coming up this morning is the release of the Eurozone’s latest industrial production figures, which could provide a boost to the euro if factory output in the bloc bounced back in line with expectations in March.
However, the most impactful release of the day looks to be the US consumer price index (CPI) later this afternoon.
Economists are predicting the CPI figures will report a sharp acceleration of domestic inflation last month, with the consensus estimate predicting a whopping 3.6% jump.
With the Fed reluctant to raise interest rates and having repeatedly stated its willingness to let inflation temporarily run hot, the dramatic rise in price growth could be viewed as USD negative for fears that it will start to weigh consumer spending.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)