Investors will closely eye the April consumer price index reading on Wednesday for any signs inflation may be starting to cool, with expectations calling for a 8.1% annual increase compared to the 8.5% rise recorded in March. “It’s the calm before inflation data tomorrow, so this is allowing a breather for risky assets,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington DC.
On Tuesday, the dollar was turbulent, swinging between slight gains and losses as it stayed near a two-decade high ahead of a key inflation report that might shed light on the Federal Reserve’s monetary policy course. The yield on the benchmark 10-year note fell below 3% after reaching a high of 3.203 percent on Monday, and the S&P 500 struggled to recover from a three-day fall.
“Nothing has materially improved when it comes to global growth, worries about China so the market is just seeing there is an occasion before the inflation data tomorrow and there is a little bit of positioning going on and that is working in the favor of risk assets.” The dollar index rose 0.087% at 103.780, with the euro down 0.12% to $1.0542.
The greenback has climbed nearly 9% this year as investors have gravitated towards the safe haven on concerns about the Fed’s ability to tamp down inflation without causing a recession, and on worries about slowing growth arising from the war in Ukraine and rising COVID-19 cases in China.
After the Fed raised its benchmark overnight interest rate by 50 basis points last week, the largest hike in 22 years, investors have been attempting to assess how aggressive the central bank will be. Expectations are completely priced in for another hike of at least 50 basis points at the central bank’s June meeting, according to CME’s FedWatch Tool.
Multiple Fed officials on Tuesday echoed the need for a 50 basis point hike at the next meeting. Cleveland Federal Reserve Bank President Loretta Mester on Tuesday said raising interest rates in half-point increments “makes perfect sense” for the next couple of Fed meetings. In addition, New York Fed President John Williams said that Chair Jerome Powell’s indication the central bank will hike by half a percentage point at the next two polict meetings is sensible.
The Japanese yen strengthened 0.07% versus the greenback at 130.17 per dollar, while Sterling was last trading at $1.2314, down 0.14% on the day. In cryptocurrencies, Bitcoin last rose 0.29% to $31,029.07 after falling below the $30,000 mark for the first time since July.
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