GBP

The pound has found some support against both the dollar and euro in early trading, gaining from temporary Brexit relief and the latest quarterly outlook of the UK economy by the National Institute of Economic and Social Research (NIESR). The UK think tank said the Bank of England will have to raise interest rates to 2.5% this year and keep them there until the middle of the decade to keep soaring inflation under control. They continued that although the BOE cut their growth forecast for 2022 to 3.5% from 4.8% and downgraded its 2023 to 0.8% from 1.3%, it was better than the central bank outlook which forecast a 0.25% contraction in 2023 at its last meeting. The NIESR also forecast that consumer inflation was likely to peak at 8.3%, lower than the BOE’s forecast of 10% as they do not expect energy prices to increase as much. Senior Minister Michael Gove said this morning that the UK would continue talking to the European Union over the Northern Ireland protocol. His comments follow those from a spokesman for PM Johnson who said yesterday that no decision had been taken on the protocol.

EUR

The euro has found a little support within a tight range against the dollar, helped by a slightly better risk mood in early trading. The single currency was also underpinned by “hawkish” comments from European Central Bank policymakers. Governing council member and German central bank head Joachim Nagel said this morning that higher inflation expectations from various surveys of households and businesses point to higher inflation and reiterated previous comments that he expected the ECB to end QE in June and raise rates in July. His comments followed those by Estonian policymaker Madis Muller who said it was appropriate to raise rates into positive territory by the end of the year. ECB President Christine Lagarde will be at a conference to mark the 30th anniversary of the Slovenian Central bank later today.

USD

The dollar has shed some gains in early trading ahead of today’s key reading on inflation that should provide clues on how aggressive the Federal Reserve Bank will be in tightening monetary policy. The consumer price index is expected to fall to 8.1% in April from 8.55% in March, but the more important reading will be the index that excludes food and energy, which is expected to fall to 6% last month from 6.5% in March. Yesterday, President Biden declared that fighting inflation is his top domestic priority and he understands Americans frustration over high prices. He added that he was looking at the possibility to drop some of the tariffs imposed on Chinese imports in order to lower US inflation.

Economic Calendar

10:00 EUR ECB’s President Lagarde speech
13:30 USD Consumer Price Index (YoY)(APR)
13:30 USD Consumer Price Index ex Food and Energy (YoY)(APR)