Forex Today: Dollar returns to dominate, Bitcoin bounces amid halving, US inflation eyed


Here is what you need to know on Tuesday, May 12:

The market mood is somewhat risk-averse, with stocks on the back foot while the dollar and the yen advance. Oil stands out with gains amid Saudi output cuts. Bitcoin's performance is eyed after the halving event. Fears of a second wave of coronavirus infections 

The most recent deterioration in the mood has been attributed to China's ban on imports from four Australian producers. The move is seen as a retaliation for Australia's call for an investigation into the origins of COVID-19. 

US President Donald Trump has continued urging a return to normal while touting tests and a flattening curve. However, disease data remains stubbornly high and even spiking in several areas, according to the internal data held by the administration.

The White House has introduced regulations about wearing masks amid a cluster of infections. Anthony Fauci, one of the leading doctors in the administration's task force, will testify on Capitol Hill on Tuesday and will reportedly warn of the risks of reopening. 

 

Inflation figures in the US are projected to show a significant drop in headline prices due to the crash in oil prices, yet also excluding volatile items, monthly falls are on the cards. See US Consumer Price Index Preview: The demand shock on prices.

Oil prices have been holding their ground despite the moderate risk-off mood. Saudi Arabia announced it would further reduce production, going beyond the OPEC+ agreement. Fears of filling storages remain significant. 

Bitcoin: The halving is here – the highly anticipated 50% reduction in mining new BTC has happened, and the reaction is positive. The granddaddy of cryptocurrencies is on the rise, trading around $8,700. Volatility is set to remain elevated. 

GBP/USD is on the back foot, and that can partly be attributed to Prime Minister Boris Johnson's confusing messages about getting back to work. The PM has tweaked his message between Sunday and Monday. Brexit talks continue at full speed. 

Andy Haldane, Chief Economist at the Bank of England, has said that the British economy may suffer long-term damage. 

Europe: German Chancellor Angela Merkel has tried to defuse tensions between the country's constitutional court and European institutions after judges at Karlsruhe deemed part of the European Central Bank's bond-buying scheme as partly illegal. The ruling weighed on the euro last week and remained of interest. 

European countries continue their gradual loosening of the lockdown, with fears of a second wave of infections. Figures released on Tuesday are already clean of the "weekend effect" that distorts data. 

Chinese producer prices dropped more than expected, reflecting sluggish growth and potentially more stimulus. Consumer inflation has risen, mostly driven by a surge in pork prices.

More Why markets are up, risks that are underpriced, indicators to watch – Interview with Ipek Ozkardeskaya

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