Pound Benefits From Inflation Data, Focus Shifts To FOMC Minutes

Sterling Jumps As UK Inflation Slows Less Than Forecast

The Pound jumped this morning after data showed UK inflation neared the Bank of England's target in April, but did not slow as much as expected, leaving the chances of a June rate cut unchanged at around 50%. British consumer prices rose by 2.3% in annual terms in April, slowing from a 3.2% increase in March, the Office for National Statistics said. The Bank of England and economists polled by Reuters had forecast an annual rate of 2.1%. Sterling rose by as much as 0.3% to a new two-month high of $1.2752, and was last trading at $1.2749. The Euro fell against the Pound to two-month lows and was last down 0.3% on the day at €1.1740. Headline consumer inflation fell, driven in large part by a decline in household energy prices. But other measures of price pressures, such as services inflation, picked up more than expected, complicating the chances that the BoE could cut rates as soon as June. Pepperstone strategist Michael Brown said the data cast some doubt on the BoE cutting rates as soon as the next Monetary Policy Committee meeting in June.

Data: Monetary Report Hearings. Speaker 13.45: MPC Member Breeden.

ECB: Lagarde further endorses June cut

European Central Bank President Christine Lagarde sounded cautiously dovish in line with most comments from her Governing Council members in a speech yesterday. She claimed to be “really confident that we have inflation under control” and there is a “strong likelihood” rates will be cut in June if inflation remains encouraging. Markets are pricing in 24bp of easing for next month and are therefore disregarding more comments on the June meeting. According to ING Bank, they still think EUR/USD can ease back to $1.0800 in the near term, but their Q3 forecast remains at $1.1000 as the Fed transitions to easing and the ECB broadly matches the market’s rate cut expectations.

No major data

Dollar calm as Fed urges patience

The Dollar was steady against a handful of peers in the early morning trading session as investors assessed calls for patience from Federal Reserve officials and awaited Fed meeting minutes for more insight on the central bank's rate path. Investors have largely been shoring up U.S. rate cut bets after a milder inflation reading last week, even as Fed officials continued to sound a cautious note. Fed Governor Christopher Waller said overnight that he would need to see several more months of good inflation data before he would be comfortable supporting rate cuts. That timeline was echoed by Cleveland Fed President Loretta Mester. Markets now have about 43 basis points (bps) of easing priced in for this year versus last week's 52 bps.

Data 15.00: Existing Home Sales expected 4.21M from 4.19M. 19.00: FOMC Meeting Minutes.