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Greenback Sustains Losses Despite Higher CPI

FOREX
  • The greenback headed into the April CPI release as the worst performing currency in G10, as markets positioned for a soft reading. This quickly reversed course following the release, with the greenback rallying in tandem with US yields while equities fell. Core CPI was 0.2ppts ahead of expectations, driven by services inflation. This helped drive rate expectations higher and prompted a wave of risk off.
  • EUR/USD traded through overnight lows of 1.0526 to narrow in on the 1.0500 handle, before the price action partially reversed into the close - with markets adopting the view that the bar to larger hikes from the Fed remains high. For EUR/USD, however, the trend remains lower. Weakness through 1.0500 would open the YTD and cycle lows of 1.0472 next.
  • Elsewhere, EUR/GBP traded well, with the cross topping 0.8550 as the European Union warned that they would suspend the post-Brexit trade deal should the UK move to unilaterally revoke the Northern Ireland protocol. The renewed concern surrounding the Brexit Withdrawal Agreement pushed GBP to be the poorest performer in G10 Wednesday.
  • UK preliminary GDP data crosses Thursday, with markets expecting 1.0% growth on the quarter and 8.9% on the year. US PPI data is also due, in which markets will be watching for any follow through of inflationary pressure after Wednesday's above-forecast CPI. ECB's de Cos and Makhlouf are also due to speak.
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