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Greenback Recovers Following Post-CPI Sell-Off

FOREX
  • March US inflation data showed the weakest M/M core print since September 2021 and the biggest core goods drop since April 2020. With the data putting a small spanner in the works for a 50bp May hike, the dollar was seen sharply lower across the board.
  • USDJPY had a fairly aggressive move lower following the data. Having failed earlier in the session, just below the 2015 highs of 125.86, the pair fell around 75 pips to print fresh daily lows at 124.77. In similar vein, EURUSD received a solid boost to regain the 1.09 handle, albeit very briefly.
  • Overall, greenback weakness was short-lived and the dollar index slowly edged its way back above the 100 mark and is trading at the best levels of the day approaching the APAC crossover.
  • Interestingly, USDJPY was unable to retrace all the post-CPI losses, however, EURUSD went on to extend below last week’s lows and narrow the gap with the March low of 1.0806.
  • Indeed, Euro crosses came under particular pressure today with EURAUD the hardest hit, down 1.25% on Tuesday. AUD remains the strongest currency on the day across G10, with AUD/USD bouncing off overnight lows of $0.7400 in a move that coincided with a late recovery in Asia-Pacific equities.
  • The relative and notable Euro weakness comes ahead of Thursday’s ECB decision. The consensus expects no material change in policy at the April ECB meeting, however, MNI believe that it is a close call and that markets should be prepared for a hawkish surprise.
  • Major central bank decisions in focus tomorrow. First up the RBNZ appear to have a close call on whether to raise the OCR by 25bp or 50bp. Secondly, the Bank of Canada is widely expected to hike its overnight rate by 50bp and end the reinvestment phase.
  • On the data front, UK CPI and US PPI headline the docket.
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