GPS Global Wallet – May 11th Edition

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Data released yesterday showed some positive signs that US inflation may be slowing, potentially giving policy makers on the FOMC room to pause interest rate hikes. US CPI rose by 4.9% from a year earlier, with the release coming in a touch under forecast and the first sub 5% print in two years. Whilst this was welcome news, overall prices are still rising at a lively pace with inflation still above target and Fed officials will need to see more than one months’ worth of data to be confident that price pressures are on any sustained downward trend. Yesterday’s report will be one of several data points that rate setters will consider when they meet next month, but the release certainly backs up comments from officials who hinted last week that they may be done hiking for now.

The greenback slipped on the inflation report, with the dollar index losing ground whilst treasury yields remained steady. EURUSD made a fresh attempt to break higher, but once again failed to significantly breach 1.10, dropping to the lower end of its recent range, where the pair is supported at 1.0940.

The pound is steady against the greenback, holding station above 1.26, and remains elevated against the single currency with GBPEUR hovering around 1.15. The key event for the pound today will be the midday decision from the Bank of England. UK inflation remains stubbornly above target and close to double figures, so a widely expected 0.25% hike today would be the twelfth consecutive increase and would put the benchmark rate at 4.5%. Investors will be paying close attention to the new Monetary Policy Report to see if the MPC follows the FOMC and signals that a pause is on the cards.

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