Kantox currency update: dollar remains strong on higher U.S. bond yields
The dollar remains steady near its 4, ½ months peak, buoyed by the rising U.S, 10-year bond yields, which surpassed the psychological 3% level on Wednesday, ahead of the release of April’s Consumer Prices Index.
The euro dropped to fresh 2018 lows amid concerns of a populist government in Italy, while the pound consolidates at three-month lows awaiting the release of the BoE’s monetary policy decision.
EUR/USD dives to new lows near 1.1800. The euro extended its decline on Wednesday, weighed this time by the prospect of a Eurosceptic cabinet in Italy after the coalition agreement between Five Star Movement and Lega Nord. At London market opening times, the EUR/USD is trading at 1.1870.
GBP/USD: steady above 1.3500 awaiting the BoE. The sterling has remained trapped within a 100 pip area roughly between 1.3500 and 1.3600 over the last five days, consolidating after a nearly 6% sell-off from 1.4350 area and awaiting the BoE monetary policy decision. At London market opening times, the GBP/USD is trading at 1.3585.
USD/JPY testing 110.00 resistance area again. The dollar appreciated against the yen on Wednesday, buoyed by the widening U.S. – Japan bonds’ yield differential and returns to levels right below 3-month highs at 110.05. At London market opening times, the USD/JPY is trading at 109.90.
In the Calendar Today
At 08:30 GMT National Statistics will release the UK Industrial and manufacturing production figures whose impact is likely to be limited as the investors’ will be awaiting the outcome of the BoE meeting.
At 11:00 GMT all eyes will be on the BoE monetary policy decision and the ensuing press release by BoE Governor Carney. Until only two weeks ago, the May rate hike was practically granted, although an string of weaker than expected UK economic releases has reduced market expectations of BoE tightening chances from 75% one month ago to 10% last week, with the pound plummeting in parallel. In this context, a rate hike today will be a surprise and might boost the pound across the board.
At 12:30 GMT the U.S. Bureau of Labour Statistics will release the Consumer Prices Index figures. Inflation is expected to have inched up, although the core CPI might have eased below 2%. The dollar would need a strong core inflation to put pressure on the Fed to hike rates faster than the three times scheduled for this year.
08:30 GMT UK: Manufacturing Production (MoM) (Mar)
Previous: -0.2% Expected: -0.2%
11:30 GMT BoE: Interest Rate Decision
Previous: 0.5% Expected: 0.5%
11:00 GMT BoE: Carney’s speech
12:30 GMT U.S: Consumer Prices Index (YoY) (Apr)
Previous: 2.4% Expected: 2.5%