Earlier in the week we did see both core inflation and inflation levels decrease in April for the US. While retail sales showed a slowdown too, this lead to USD weakness. Market speculated that a chance of US lower their borrowing costs in September increased. The recent USD weakness came to a halt last night after a number of speeches from Federal Reserve officials.
They warned that current market speculations on rate cuts from the Federal Reserve looks to be premature. Indicating that there is no rush when it comes to lower borrowing costs and that the Fed wants to analyse economic data over a longer period before making an official decision. There is one more speech from the Federal Reserve saved for today and if Waller is in line with the other four members – providing that majority of its members have the same forecast we could see support for the USD. On the other hand, if he would suggest that there is not a requirement for inflation levels to come down further and start accelerate a potential rate cut – this can lead to uncertainty within the members and cause downward pressure for the greenback.
Main data for today is European core inflation and inflation levels for April. Expectations for inflation level is a decrease month on month from 0.8% in March to 0.6% in April. While core inflation is on path to continue falling since July 2023 month on month, reaching a new low of 2.7%. Can this be a strong indication that there is an urgent need for ECB to cut rates? With inflation levels reaching a region, not too far off target rates – while economic growth is lacking across Europe. Liquidity is needed and to lower borrowing costs would inject more money in the economy.
