Inflation woes push back hike expectations from the Fed

Chances of an imminent hike in interest rates from the Federal Reserve receded yesterday after personal consumption expenditure price index data from the US fell below expectations (this is the Fed’s preferred measure of inflation), which comes contrary to US GDP figures on Friday which showed a mild recovery of the US consumer, fuelling a strong reading. What does this mean for the Dollar? The greenback has softened against most other currencies and is pulling back from its 7-day winning streak, but only mildly as traders now look toward the June meeting as the next opportunity for Janet Yellen and Co. to raise interest rates. Nonetheless, the ever-important jobs report due on Friday will curry near-term interest.

Vote Leave push their pro-business credentials

After the long weekend, Sterling has fallen against both the USD and the EUR this morning – the Vote Leave camp rolled out their pro-business campaign this weekend with a signed letter from 250 heads of industry including former HSBC CEO Michael Geoghegan. It remains to be seen how the public will be influenced by the man who oversaw a 30% decline in HSBC’s share price during his tenure and the next round of polling will be keenly eyed for any sentiment swing toward ‘leave’ after the tragedy in Brussels last week.

Eurozone CPI due on Thursday

In Europe, the EUR trades well within its recent range, as the market looks for cues from this Thursday’s critical Eurozone inflation reading. CPI is expected to have declined at an annual rate of 0.1%, but to have risen 1.0% when stripping out energy effects, a modest improvement from February, which will likely be read as the first test of the ECB’s latest wave of monetary easing – although we’ll have to be far more patient to see the real effects of this policy.

Fed Chair Yellen due to speak

Today, Janet Yellen is due to speak on policy and markets will be looking out for just how much stress she places on overseas volatility – any indication that the Fed are looking to pause while markets in Europe and Asia settle could send GBP/USD back toward the 1.43 level, as markets push back expectations of another hike this year.

Have a great day.