Forex Today: US Dollar weakens, not collapses, after US CPI

On Thursday, the Bank of Japan will release their summary of opinion from Ueda's first meeting. New Zealand will release the Food Price Index for April, in Australia attention would be on Melbourne Institute's Inflation Expectations survey and Westpac's Consumer Confidence. China will release April's inflation data. Markets will continue to digest US inflation data ahead of the PPI. The Bank of England will announce its decision on monetary policy.

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

Consumer inflation in the US measured by the Consumer Price Index (CPI) ticked lower in April to 4.9% from 5% in March. The Core CPI slowed down from 5.6% in March to 5.5% in April. Numbers came mostly in line with expectations. The Fed Funds rate at 5.00%-5.25% is now above the annual CPI.

Analysts at RBC commented on US CPI: 

Inflation trends in the U.S. continue to head the right direction, but still have a long way to go before they reach the Fed's 2% target. Labour market conditions still look strong, but are showing cracks under the surface, and tension remains among regional banking credit markets. Increasingly, we expect the Federal Reserve will have to balance risks between sticky inflation, and slowing growth momentum / tighter financial conditions. We continue to expect the move last week to be the last one this cycle, leaving the Fed on hold until later this year.

The US Dollar initially dropped but then trimmed losses, ending the day lower amid lower US yields. The US Dollar Index (DXY) closed around 101.40, as it remains above the key support of 101.00. The US 10-year Treasury yield settled at 3.43% and the 2-year at 3.90%, after reversing from near 4.10%.

More US inflation data is due on Thursday with the Producer Price Index (PPI). Also, the weekly Jobless Claims report is due. The debt ceiling impasse continues despite everybody warning about the situation and its unnecessary costs.

EUR/USD peaked above 1.1000 but then pulled back. It continues to move sideways, above the 1.0940 support area. European Central Bank (ECB) members continue to talk about the need to raise rates further. On Wednesday, Mario Centeno was among the first to speak about rate cuts “at some point during 2024”.

GBP/USD hit fresh multi-month highs and then retreated toward 1.2600. The Bank of England (BoE) will announce its decision on monetary policy on Thursday. A 25 basis points rate hike is priced in.

USD/JPY tumbled from above 105.00 to 104.05, following US inflation data. The Bank of Japan will release the Summary of Opinions, covering Kazuo Ueda's first meeting as governor.

AUD/USD tested levels above 0.6800 but failed to hold. It continues to move with an upside bias, but limited. Inflation expectations and Consumer Confidence data is due on Thursday in Australia. Market participants will also pay close attention to Chinese inflation numbers (Consumer Price Index and Producer Price Index for April).

USD/CAD finished flat around 1.3370, as it continues to consolidate last week's losses. In Canada, Building Permits jumped 11.3% in March. The Kiwi outperformed on Wednesday. NZD/USD posted its highest daily close since early February, above 0.6350. The Food Price Index is due in New Zealand.

Gold spiked after US CPI but then pulled back, stabilizing around $2,030. Silver reversed from five-day highs near $26.00, falling under $25.50. Crude oil prices dropped 1% amid a mixed market sentiment. In Wall Street, the Nasdaq rose 1.04% while the Dow Jones lost 0.09%.

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