UK inflation hits 9.0%.

US retail sales increased 0.9% for April after an upwardly revised 1.4% increase the previous month and in line with market expectations.

Underlying sales were slightly higher than consensus forecasts with a 0.6% gain and there was a bigger beat for the control group with a 1.0% increase compared with expectations of a 0.5% gain and following a 1.1% increase the previous month.

Fed Chair Powell stated that the central bank knows this is a time for a laser-focussed approach on bringing inflation down and on-going rate increases are appropriate with a broad consensus on the committee that 50 basis-point increases will be on the table at the next couple of meetings.

According to Powell, the economy also needs growth to slow so that the supply side can catch up. If there’s convincing evidence that inflation is slowing the rate of rate hikes can slow, but the Fed will have to act more aggressively if not and won’t hesitate to go beyond neutral if necessary.

Powell also expressed a high degree of uncertainty, especially given the Ukraine war.

The comments overall were relatively hawkish, reinforcing rate hikes to 2.0% by late July.

US bond yields moved higher during Tuesday, especially after Fed Chair Powell’s comments and the 10-year yield moved back to near 3.00%.

ECB council member Knot stated that monetary policy needs to be normalised and that a 25 basis-point rate increase is realistic for the July meeting.

He added that 50 basis-point increases should not be excluded if data in the next few months suggests that inflation is broadening.

After heavy selling over the last few weeks, the Euro and Sterling have gained relief.

Hawkish rhetoric has underpinned the Euro while short covering has been a key element in supporting Sterling.

Markets overall still expect that underlying selling will return given overall fundamentals.

The headline UK CPI inflation rate surged to 9.0% for April from 7.0% previously and the highest reading since at least 1982. The primary influence was the jump in retail energy prices with fuel prices also a key element.

The underlying rate met expectations at 6.2% from 5.7% previously. The headline rate was marginally below consensus forecasts of 9.1% and markets had been braced for an even higher figure which led to a slight retracement in Sterling.

Hawkish ECB rhetoric again provided an element of Euro support during Tuesday. There was also an element of short covering after recent sharp losses. Confidence in the Euro-zone outlook remained vulnerable.

EUR/USD moved above the 1.0500 level with a peak just above 1.0550. Higher US yields provided an element of dollar support after Fed Powell’s comments. EUR/USD settled around 1.0530 on Wednesday.

Risk appetite was slightly less confident in Asia on Wednesday. USD/JPY struggled to sustain gains and settled just above 129.0 on Wednesday.

The Swiss franc was broadly resilient during the day with USD/CHF back below parity and around 0.9940.

Sterling was boosted by the strong labour-market report. GBP/USD touched 1.2500 on short covering before correcting to 1.2470. GBP/EUR dipped after reaching highs of 1.1912.

Commodity currencies faded from intra-day highs with a further net retreat on Wednesday.

Australian wages data was slightly weaker than expected with a 0.7% first-quarter increase. AUD/USD dipped back below 0.7000, but traded above this level on Wednesday and around 0.7025. USD/CAD found support close to 1.2800 and settled around 1.2820 on Wednesday.

Economic Calendar

07:00GBP Core CPI (Y/Y)(APR)5.70%
07:00GBP CPI (Y/Y)(APR)7.00%
07:00GBP CPI (M/M)(APR)1.10%
07:00GBP PPI Input (M/M)(APR)2.50%5.20%
07:00GBP PPI Input (Y/Y)(APR)19.20%
10:00Euro-Zone Core CPI (Y/Y)(APR 01)3.00%3.50%
10:00Euro-Zone CPI (Y/Y)(APR)7.50%7.50%
10:00Euro-Zone CPI (M/M)(APR)2.50%2.50%
13:30USD Building Permits(APR)1.873M
13:30USD Building Permits (M/M)(APR)0.30%
13:30USD Housing Starts(APR)1.793M
13:30USD Housing Starts (M/M)(APR)0.30%
13:30Canada - Core CPI (M/M)(APR)0.50%1.00%
13:30Canada - Core CPI (Y/Y)(APR)4.20%5.50%
13:30CAD CPI (Y/Y)(APR)6.70%
13:30CAD CPI (M/M)(APR)1.00%1.40%

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.