Markets are experiencing the calm before the dual storm of US CPI and the ECB decision. The dollar has been holding up despite a drop in Treasury yields while gold and oil are on the back foot. Cryptocurrencies are consolidating Wednesday’s gains.
The US dollar is at the upper end of its range ahead of the release of US Consumer Price Index figures. After April’s jump, headline inflation is forecast to accelerate to 4.7% YoY and a 5% read could trigger a substantial upside move in the greenback. Core CPI is set to rise to 3.5% YoY.
Treasury yields have been on the back foot, with returns on 10-year bonds dropping below 1.50%, contradicting the uptrend in the dollar and the decrease in gold and oil prices. Inflation data is critical ahead of next week’s Federal Reserve’s all-important decision.
The second critical event of the week and the day happens in Frankfurt. The European Central Bank is expected to leave its current bond-buying program unchanged at a total scope of €1.85 trillion yet speculation is rife about the current pace of purchases. Europe’s prospects have substantially improved but core inflation remains tame and the vaccination program still has to catch up to do.
GBP/USD has been consolidating around 1.41 amid several concerns. The UK reported the highest number of daily cases since late February, as the Delta COVID-19 variant continues spreading despite Britain’s well-advanced immunization effort.
The EU and the UK are at odds over the implementation of the Northern Irish protocols, with an EU official saying that patience is running thin. Outgoing Bank of England Chief Economist Andy Haldane said the economy is going “gangbusters” on Wednesday, but his upside impact on the pound have faded away.
Bitcoin has received a boost from El Salvador’s decision to include the granddaddy of cryptocurrencies as a legal tender. Moreover, Interactive Brokers, one of the world’s largest trading houses, will reportedly allow trading cryptos. Ethereum and other digital assets have also recovered.