ECB signals July rate hike.

US consumer prices increased 0.3% for April compared with expectations of a 0.2% increase with the decline in the year-on-year rate limited to 8.3% from 8.5% and above expectations of 8.1%. Food prices increased 0.9% on the month with an 8.3% annual increase while energy prices increased 30.3% over the year despite a 2.7% monthly retreat.

The underlying rate declined to 6.2% from 6.5%, but this was also slightly above market expectations of 6.0%. Used car and apparel prices declined on the month, but there was a strong increase in the cost of transport services on the month. The data triggered further debate over peak inflation within markets.

There was choppy trading following the US CPI data with wider risk conditions also a key element.

US Treasuries spiked lower after the US CPI data with yields jumping higher, but the 10-year yield was unable to hold above the 3.00% level with a dip to 2.90% on Thursday.

In comments on Wednesday, ECB President Lagarde stated that asset purchases should be completed early in the third quarter and that the first rate hike would take place sometime afterwards and this could be a period of weeks. She added that it looks increasingly unlikely that the disinflationary dynamics of the past decade will return.

Council member Schnabel stated that risks are growing that current high inflation is becoming entrenched in expectations and inflation could stay at painfully high levels for a considerable period of time.

In this context, she added that the urgency for monetary policy to take action to protect price stability had increased in recent weeks.

Overall risk appetite deteriorated again on Wednesday. Although there was very choppy trading in equities, Wall Street indices eventually posted significant net losses with fears over an underlying tightening of financial conditions.

Global equity markets have also lost significant ground on Thursday. UK data disappoints, Sterling slides again

Sterling came under renewed pressure on Wednesday and failed to gain any relief on Thursday. UK GDP declined 0.1% for March with first-quarter growth held to 0.8% compared with consensus forecasts of 1.0%. Industrial production declined for March and the latest trade data was also much worse than expected.

Weaker global risk appetite has also sapped support for the UK currency with GBP/USD sliding to 2-year lows below 1.2200.

Cryptocurrencies have declined sharply over the past 24 hours. The overall slide in risk appetite has undermined support, especially with a tightening of financial conditions.

Overall confidence declined also sharply amid the collapse of Luna and TerraUSD which contributed to major damage to sentiment surrounding the sector with heavy selling.

Bitcoin slumped to 17-month lows below $27,000.

There was choppy trading after the US consumer prices data with further debate over underlying inflation trends. Although the dollar retreated sharply from initial gains, there were renewed gains later in the day with the dollar index testing fresh 20-year highs. Weaker risk appetite triggered another Euro retreat towards the European close.

There was also further uncertainty over European gas supplies which contributed to further volatility. EUR/USD settled close to 1.0500 on Thursday.

The failure of yields to hold intra-day highs undermined the dollar against the yen. USD/JPY dipped to lows near 129.50 as equities lost ground before a slight recovery.

The Swiss franc regained some ground despite hawkish ECB rhetoric before retreating on Thursday. USD/CHF still traded above 0.9950 on Thursday.

Sterling remained under pressure with no fundamental support with risk aversion also sapping confidence. GBP/USD dipped to 2-year lows below 1.2200. GBP/EUR secured more losses to 7-month lows around 1.1600.

Commodity failed to hold intra-day gains and moved sharply lower as equites came under renewed pressure. AUD/USD was unable to hold above 0.7000 and posted 22-month lows below 0.6900 on Thursday. USD/CAD was unable to hold below 1.3000, but gained an element of protection from higher oil prices.

Economic Calendar

Expected Previous
07:30 CHF PPI (M/M)(APR) 0.80%
07:30 CHF PPI (Y/Y)(APR) 6.10%
12:00 OPEC Monthly report
13:30 USD PPI Ex Food & Energy (Y/Y)(APR) 9.20%
13:30 USD PPI Ex Food & Energy (M/M)(APR) 1.00%
13:30 USD PPI (M/M)(APR) 1.40%
13:30 USD PPI (Y/Y)(APR) 11.20%
23:30 NZD Business NZ PMI(APR) 53.8

*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.