Market Drivers; US Session, May 21

Federal Reserve Governor Christopher Waller has expressed concerns about the need for further rate hikes due to the hotter-than-expected inflation data. He believes that more months of good inflation data are needed before he can support an easing in policy.

Federal Reserve Bank of Boston President Susan Collins and Federal Reserve Bank of Cleveland President Loretta Mester also spoke at “Central Banking in the Post-Pandemic Financial System” on Wednesday, stating that progress toward interest rate adjustment will take longer.

Markets made marginal progress on Tuesday, with major pairs holding on to familiar levels and within tight ranges. The US Dollar saw a modest uptick amid a risk-averse environment, while Wall Street managed to post modest gains ahead of the release of earnings reports after the close. EUR/USD remained at around 1.0850, unaffected by minor European macroeconomic figures that were generally encouraging. GBP/USD remained stuck to the 1.2700 price zone, although the UK will publish the Consumer Price Index (PPI) and other inflation-related figures on Wednesday.

The Canadian Dollar edged lower, sending USD/CAD to 1.3674 after Canadian inflation figures. The Consumer Price Index (CPI) declined to 2.7% on a yearly basis in April from 2.9% in March, while the Bank of Canada’s core Consumer Price Index increased 1.6% on a yearly basis, down from the 2% growth recorded in March. AUD/USD held around 0.6660 despite Australia’s May Westpac Consumer Confidence improvement.

The Fed Board issued its Economic Well-Being of US Households in 2023 report, which examined the financial circumstances of US adults and their families. The news is discouraging, as inflation picked up in the first quarter of the year, further diluting the odds for multiple rate cuts throughout the rest of the year.

Financial markets await fresh impetus with the release of the UK Consumer Price Index (CPI) and FOMC Minutes due on Wednesday. Federal Reserve officials remain cautious about the timing of interest rate cuts, as the hotter-than-expected inflation data dampens the hope of easing policy.

Also Read
What are BoE’s expectations for UK inflation?

S&P 500 Hits Fresh Highs Ahead of FOMC Minutes, Nvidia Earnings

Canadian dollar struggles amid inflation data, rate cut bets

US dollar in red ahead of FOMC minutes

Gold price slides on reluctance about rate cut