[MARKET ANALYSIS] Dollar pauses after strengthening yesterday as higher oil prices and hotter inflation spurred Fed rate hike bets
DXY: Flat
- Takes a breather after gaining yesterday in tandem with higher oil prices and a hotter-than-expected CPI report in which services and supercore inflation proved sticky, prompting Fed's Goolsbee to express concern again over the former. The geopolitical situation remains uncertain as Iran has set its own preconditions to entertain a second round of talks, which the US is known to be against, including compensation for damages caused by the war and recognising Iran’s right of sovereignty over the Strait of Hormuz, while participants look to PPI data and the approaching Trump-Xi summit.
EUR/USD: Flat
- Trades sideways overnight after recently giving up ground to the dollar, despite hawkish-leaning comments from ECB's Nagel, who said the ECB mandate requires them to act if inflation expectations de-anchor and "we'll see in June", while he also stated they still have quite a bit of inflation ahead of them and that ECB rate hikes are becoming increasingly likely. Furthermore, participants also await several data releases from the bloc, including EZ Employment Change, Industrial Production, and Q1 GDP 2nd Estimate.
GBP/USD: Flat
- Remains constrained amid political headwinds as UK PM Starmer continues to defy the increasing calls for him to step down, which essentially invites a leadership challenge, while UK government whips are said to believe that Wes Streeting will make his move on Thursday to avoid clashing with the King's Speech.
USD/JPY: +0.1%
- Retains a firm footing at the 157.00 handle after the recent increase in oil prices and upside in US yields, while the Japanese currency failed to benefit from stronger Current Account and Bank Lending data, nor from the market pricing for a BoJ June rate hike.
Antipodeans: AUD/USD Flat / NZD/USD +0.2%
- Trade rangebound after yesterday's intraday rebound and with little reaction in AUD/USD after Australian wage data printed in line with expectations.
Context
The dollar's pause follows its recent strength, buoyed by higher oil prices and a hotter-than-expected CPI report, which has heightened Fed hike expectations. While geopolitical tensions with Iran loom, the market is keenly awaiting PPI data that could further influence inflation outlooks and monetary policy direction.
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