Forex Today: Markets turn cautiously optimistic as focus shifts to US CPI

Here is what you need to know on Wednesday, May 11:

The positive shift witnessed in risk mood mid-week makes it difficult for the greenback to continue outperforming its rivals. As investors await the Consumer Price Index (CPI) data from the US, which is expected to decline to 8.1% on a yearly basis in April from 8.5% in March, the US Dollar Index stays relatively quiet below 104.00. Market participants will also continue to pay close attention to comments from central bankers, including European Central bank Christine Lagarde, throughout the day.

US CPI Preview: Hard core inflation to propel dollar to new highs, and two other scenarios.

On Tuesday, US President Joe Biden said that the Federal Reserve is focused on taming inflation and added that his administration was considering eliminating Trump-era tariffs on Chinese imports to lower prices. "No decision has been made on it," Biden further noted. The Shanghai Composite Index rose more than 1% on a daily basis on this headline. The S&P 500 Index closed in positive territory on Tuesday but the Dow Jones Industrial Average and the Nasdaq Composite indexes registered losses. Early Wednesday, US stock index futures post modest gains. The data from China showed that the annual CPI jumped to 2.1% in April, compared to the market expectation of 1.8%.

US April CPI Preview: Has inflation peaked?

Meanwhile, the benchmark 10-year US Treasury bond yield fell for the second straight day on Tuesday and continues to push lower below 3% early Wednesday. Cleveland Fed President Loretta Mester said on Tuesday that the Fed will have to see what's more needed after hiking the policy rate by 50 basis points in June and July.

EUR/USD continues to move up and down in its tight weekly range above 1.0500 early Wednesday. European Central Bank (ECB) Governing Council member Francois Villeroy de Galhau told France Inter radio on Wednesday that the illusion of a limitless and costless debt was very attractive but also very dangerous.

GBP/USD closed flat above 1.2300 on Tuesday and posts small gains at around 1.2350 in the European session. In a recently published report, the UK's National Institute of Economic and Social Research (NIESR) said that the Bank of England needs to raise the policy rate to 2.5% next year to be able to battle inflation.

Gold slumped to its weakest level in nearly three months at $1,832 early Wednesday. Despite falling US Treasury bond yields, the yellow metal continues to have a tough time finding demand. XAU/USD is trading modestly higher on the day at around $1,845 n the European morning. 

USD/JPY stays directionless above 130.000 for the fourth straight trading day on Thursday. Japan's Chief Cabinet Secretary Hirokazu Matsuno said earlier in the day that the government must respect the Bank of Japan's (BOJ) jurisdiction in setting the monetary policy.

Following Monday's sharp decline, Bitcoin rebounded modestly on Tuesday but failed to gather bullish momentum. At the time of press, BTC/USD was down more than 1% on the day at $30,600. Ethereum rose more than 5% on Tuesday but reversed its course early Wednesday. ETH/USD was last seen losing 1.3% at $2,300.