The U.S. Dollar is trending downward following the release of inflation in the form of Consumer Price Index figures.
Overview
April’s month-on-month pace came in at 0.4%, just as expected. However, the prior month’s number was revised to 0.1%, demonstrating that price growth has indeed been dented. CPI Y-o-Y thus fell from averaging 5.0% to 4.9%. Thus far, the markets seem to be welcoming the news as it allows for the Fed to consider pausing their current contractionary policy.
We will not know until June 14th if the Fed will rise once more and then explain if data merits taking the foot off the gas. What does seem clear is that equities are hoping the tightening cycle that has embedded our lives for about 2 years comes to an end. Tomorrow, we will get the supply-side perspective from Producer Price Index figures. Strong labor and price growth coming down is also the mix needed for investors and traders to fend off recessionary thinking for 2023.
What to Watch Today…
- No major economic events are scheduled for today
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EUR ⇑
The Euro is on the rise following the reaction to steady CPI numbers out of the U.S., suggesting that the average level of price growth is declining. On the other side of the Atlantic, however, the largest Euro-zone economy is still facing strong inflationary figures, with April’s CPI yearly average at 7.2%. This moment of inflationary divergence is aiding the Euro following commentary from European Central Bank officials explaining that there is indeed evidence of ongoing inflation that forces the tightening cycle to keep going.
Meanwhile, it will be important to watch how the EU starts taking away business from China as Italy is planning on exiting formerly agreed-upon plans to participate in China’s Belt & Road Initiative. Alliance with Russia has made the politics of doing business with the world’s second-largest economy filled with friction and animosity. The Group of Seven will meet in Japan tomorrow, where commentary could impact markets.
MXN ⇑
The Mexican Peso is still trading around its strongest levels against the buck since mid-2016 and could hit a fresh new best after being the biggest mover following U.S. CPI earlier. Already up close to 1.0% since the opening, MXN remains a top performer with a determined central bank, Gross Domestic Product growth quarterly of over 3.5%, and overall benefit from a global recovery. LATAM currencies are improving as investors also look for yield and fear a pause in borrowing costs in the U.S. sooner rather than later.
