CPI Misses; Euro Falling as Draghi Speaks

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CPI Misses; Euro Falling as Draghi Speaks

APRIL 10, 2019

Currency markets were mostly quiet overnight as traders awaited a slew of economic releases and central bank activities scheduled for today.

Overview

The dollar could see some general weakness this morning after a key measure of inflation rose less than forecast in March.  Core consumer price index, which excludes food and energy, only rose 0.1% from a year earlier, less than the 0.2% forecast by economists.  The year over year number also came in lower at 2.0%.

The lack of price pressures will add to the Fed’s argument that interest rates should remain unchanged in the medium term.  We will get a better look at the Fed’s thinking this afternoon as the central bank will release the minutes from their last meeting.  Currently, futures show a 56% chance that the Fed will actually need to cut rates by the end of the year.

What to Watch Today…

  • Fed Minutes at 2 p.m.

Complete Economic Calendar can be found here.

EUR

The Euro gained slightly overnight, holding on to small gains from earlier this week. However, the common currency has dipped lower in early trading.  The European Central Bank kept its current monetary policy unchanged this morning as the Euro-area economy faces continued challenges, which was widely expected.  The Euro began to slide as ECB President Mario Draghi became to speak in Frankfurt.  Draghi said that the central bank will “consider whether the preservation of favorable implications of negative interest rates for the economy requires the mitigation of their possible side effects, if any, on bank intermediation.”  He also held that inflation is likely to decline over the coming months, putting additional downward pressure on the Euro.

GBP

The sterling remains in limbo as Brexit negotiations continue.  Bloomberg News reports that the European Union will offer the U.K. a 12 month delay for Brexit at today’s summit in Belgium.  The length of the delay will become troubling for PM Theresa May as the U.K. would have to take part in the European parliament elections, a bone of contention for the conservative MPs.

The economic docket surprised to the upside as the U.K. economy fared better than expected.  Growth in the three months to February held at 0.3%, beating expectations of a 0.2% increase.

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