The Dollar is slightly weaker today following its large gain on Tuesday, with the Canadian and Australian Dollars leading the rally.
The larger-than-expected fall in US PPI-inflation to 2.6% yoy in April from 3.0% yoy in March has led some analysts to forecast that CPI-inflation data out today will show only a modest increase to 2.5% yoy from 2.4% yoy in March. The PPI-inflation data has for now has anchored markets’ belief that the Federal Reserve will only have to hike only twice more this year.
Sterling is pretty steady ahead of today’s important Bank of England policy meeting (12.00 London time). Markets are seemingly ignoring RICS data confirming a cooling of the UK and in particular London housing market and mixed manufacturing and industrial output numbers for March.
Consensus forecast is that the Bank of England will leave it policy rate unchanged at 0.50% following weak macro data in March-April and markets will likely focus on the extent to which the BoE leaves the door open to a rate hike later in the year. With this in mind, the accompanying statement, vote count on the nine-member MPC, updated growth and inflation forecasts and Governor Carney’s press conference will likely be key in setting the tone for the UK rates and FX markets in coming days.
