Market Drivers – US Session – Tuesday 10 May

Germany and the US will publish their latest inflation figures on Wednesday. German CPI is expected to be confirmed at 7.4% YoY, while the US reading is foreseen at 8.1%. An in-line or lower than anticipated reading may boost optimism, to the benefit of equities and to the detriment of the USD.

Inflation, once again, is impacting all financial markets, in addition to other factors stemming from growth-related concerns. The US dollar lost some ground throughout the first half of the day but shortly thereafter recovered after Wall Street’s open amid a souring market sentiment.

The catalyst for the latest round of risk aversion came from US Fed’s Loretta Mester, who said that a 75 bps rate hike is not out of the table “forever,” although adding that the current pace of hikes seems “about right.”

GBP/USD trades a handful of pips above the 1.2300 threshold. Demand for the British Pound was undermined by headlines, later denied, suggesting the UK would announce its intention to break the Northern Ireland treaty.

The EUR/USD pair is down within range, trading at around 1.0530 and weighed by the continued tensions between the continent and Russia. Another factor affecting the shared currency negatively was the German ZEW survey, which anticipated a further deterioration in the economic situation.

Commodity-linked currencies, particularly the Canadian dollar edged lower, following the lead of Wall Street, but were also affected by falling gold and oil prices. The bright metal settled just below $1,840 a troy ounce, while WTI fell below $100 a barrel.

The USD kept advancing against the Swiss Franc but held unchanged against the Japanese yen. US Treasury yields edged sharply lower, with that on the 10-year Treasury note settling at 2.95%.