GBP

After a positive day on Tuesday fuelled by upbeat market sentiment and wage inflation data, sterling has lost momentum in early trading after inflation data came in below forecasts earlier this morning. Although consumer price inflation hit an annual rate of 9% in April, the highest since official estimates began in the late 1980’s, economists had been expecting a reading of 9.1%. A Reuters poll released yesterday reported that most economists saw little let up in consumer price rises, predicting inflation averaging 8.3% in the next quarter from 8.7% in the current. The pound showed little reaction yesterday when Foreign Secretary Liz Truss set out steps to try to break the deadlock with the European Union on trade with Northern Ireland, lining up a new law that would effectively override parts of a Brexit deal. In a statement to parliament, Truss said planned legislation would ease the movement of goods, apply the UK’s tax regime in Northern Ireland and hand London more say over the laws governing the province. European Commission Vice President Maros Sefcovic said such action was “not acceptable” and that Brussels would respond with all measures at its disposal. Ireland described the move as one “of great concern”, while British Prime Minister Boris Johnson said he thought a trade war was unlikely.

EUR

The euro is on the back foot against the dollar in early trading, hurt amid a cautious market mood. The single currency also took a blow when the Deutche Bauindustrie (German construction industry) reported that rising prices for building materials and energy are expected to hit Germany’s construction sector this year. The association said the sector had weathered the fallout of the covid pandemic well and initially projected real term growth sales of 1.5% for 2022. However, this morning they said it expects development in the main construction sector between 0 and minus 2%. The single currency may benefit if ECB policymakers’ have similar thoughts to those of Governing council member Klaas Knot, who said yesterday that a 50-basis point rate hike in July should not be excluded. The market’s main focus will be on inflation data for the bloc released this morning.

USD

After falling for the third straight day on Tuesday when an appeal for risker assets diminished the dollar’s safe haven demand, the greenback has found a firm footing in early trading amid rising US treasury bond yields. The dollar index began to pare yesterday’s losses when Federal Reserve Bank Chairman Jerome Powell emphasised his resolve to get inflation down, telling the Wall Street Journal he will back interest rate increases until prices start falling back toward a healthy level. He also repeated his commitment to getting inflation closer to the Fed’s 2% target and cautioned that it might not be easy and could come at the expense of the 3.6% unemployment rate.

Economic Calendar

10:00 EUR HICP inflation (MoM)(APR)
13:30 USD US Housing Starts
20:00 USD FED Harker speech