US inflation vs Euro
|This Thursday the European Central Bank will update monetary policy: we expect that interest rates will not change. The ECB will say it needs to wait again in its slow move to normalise money without pushing EUR/USD significantly higher. As Janet Yellen, former Chair of the US Federal Reserve Bank, managed to do in the USA: end ultra-loose policy without driving a USD stampede. ECB President Mario Draghi’s will focus on details for ending quantitative easing yet avoid discussion on interest rates.
With US 10-year treasuries making a run at 3.0%, rising bond yields are giving the greenback a solid boost. Markets are focused on inflation, thanks to higher oil prices. A steeper US yield curves will keep USD strong against oil-importing EM currencies such as INR and TRY. March weakness in European economies was temporary: April purchasing managers’ data came in above expectations: PMI composite rose to 55.2 versus 54.8 expected, while manufacturing was slightly below at 56.0 vs. 56.1 expected. June and July should bolster the case for a Euro interest hike.
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It will also be a busy for corporate earnings, with over a third of the S&P 500 set to report.
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