The focus is on the report on consumer prices in the United States, the volatility of the dollar has sharply increased after the release of statistics has increased dramatically.
Consumer price growth, as expected, slowed down sharply in April. Compared to March, the indicator rose by 0.3%, which is the smallest increase since August last year. Such dynamics, in particular, is due to a decrease in gasoline prices, which sank by 6.1% after rising by 18.3% in March.
In March, the consumer price index increased by 1.2% on a monthly basis, which was the largest increase since September 2005.Slowing inflation is good news for risky assets. US stock indices rose, the dollar sank. This was the first reaction. However, the current situation in prices is unstable and may be of a temporary facilitating nature. There is a risk that there will be a jump again next month, as the price of gasoline has regained its upward momentum. At the start of this week, growth was around $4,161 a gallon after falling below $4 in April.
The annual consumer price index rose by 8.3%. While this was the first annual slowdown since last August, it marked the seventh straight month of inflation above 6%. The consumer price index rose 8.5% in March, the biggest year-on-year increase since December 1981.
According to economists, consumer prices should have risen by 0.2% in April and 8.1% in annual terms. Despite the slowdown, both figures were higher than expected.
US Inflation Rate M/M
The most worrying moment for the markets is the dynamics of core inflation. This indicator rose by 0.6% in monthly terms and 6.2% in annual terms. The forecast was 0.4% and 6%, respectively. In other words, inflation continues to spread throughout the economy, although at a slower pace.
The dollar sank, but later it is likely to bounce back. Higher-than-expected inflation is hard on equities and good for further greenback gains as it suggests further aggressive Federal Reserve rate hikes.
Inflation well above the 2% target will continue to push the US central bank to act faster. It is possible that central bank representatives will soon begin to receive new signals for a proposed rate hike of more than 50 bp.
The dollar index was under some selling pressure on Wednesday and fell well below 104.00. Judging by the recent price movement, it may begin to consolidate in the very near future, but there is no talk of a decline. A breakthrough of the consolidation channel should open the way to a 19-year high at 104.18, which was tested on May 9. Further, dollar bulls will have access to the round level at 105.00, which precedes 105.63 - the peak of December 11, 2002.
The EUR/USD pair is behaving quite volatile this week, but traders do not dare to violate the boundaries of the 5th figure, since there are no good reasons for this.
The euro, on a short-term impulse decline of the dollar, tried to restore the upward dynamics and retest the 1.0570 mark today. In the short term, according to analysts, further consolidation of the quote remains likely. Periodic jumps can lead to the fact that the EUR/USD pair will eventually break through the 1.0600 mark and aim for a weekly high at 1.0641.
The euro certainly looks weak, but the fact that it is staying above 1.0500 is already good.
With a breakthrough above the 3-month line near 1.0920, some easing of selling pressure is expected. This area is further strengthened by the high recorded on April 21 at the level of 1.0936.
