Attention Switches to US Central Bank Speakers

The Dollar lost ground against several major currency pairs on Wednesday as US government bond yields fell sharply, and investors look ahead to Federal Open Market Committee (FOMC) Chair Jerome Powell and European Central Bank (ECB) President Christine Lagarde’s comments at the International Monetary Fund (IMF) spring meeting. Mixed signals from Federal Reserve (Fed) officials also weighed on the Dollar later in the day and ahead of the next Fed meeting. Chicago Fed President Charles Evans commented that he was not expecting inflation to drop back to 2% next year, however, noted that there was good reason to think that special factors driving inflation higher would ease in the coming months. San Francisco Fed President Mary Daly added that it would be abrupt or surprising to see the policy rate rising to 2.5% this year. 

Looking ahead to today, US data releases include the weekly jobless claims data and the Philadelphia Fed Manufacturing survey. Initial jobless claims are expected to stay below 200k, reinforcing signs of a strong labour market which is helping to provide some offset from high inflation for the consumer.

Euro Benefits From Hawkish Comments

The Euro posted gains against a weaker US Dollar on Wednesday, supported by hawkish ECB commentary from policymaker Martins Kazaks who said on Wednesday that a rate hike could come as soon as July while policymaker Pierre Wunsch noted early Thursday that policy rates could turn positive this year. 

It’s a light economic calendar today with the only significant economic data release being the final estimate of Eurozone March CPI inflation. Market expectations are for an increase in the headline measure to 7.5%. ECB President Lagarde’s comments will be closely monitored and despite the downside risks to economic growth, uncomfortably high inflation levels mean policymakers will most likely wind down the QE programme which is expected to end in Q3. The significance of the ending of QE indicates the start of higher interest rates soon after. In the only other economic release, this afternoon’s Eurozone consumer confidence release is expected to show another decline.

Sterling Hold Despite Political Pressure

Yesterday it was quiet with no major economic data released. In addition, there was no significant impact from UK political developments with a House of Commons debate on Prime Minster Johnson due today. Pressure remains on PM Johnson to resign, the government aiming to delay any move to refer Johnson to the privileges committee. Sterling held its ground against the US Dollar as equity markets pushed higher.

Looking to the day ahead, the market will focus on comments from Bank of England (BoE) Governor Bailey and Monetary Policy Committee (MPC) member Mann who are due to speak at separate events. BoE Governor Bailey will discuss economic and monetary policy, while fellow MPC member Mann will give a speech on monetary policy in an uncertain environment.

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