April 10, 2024

“US CPI will capture a lot of attention today, with yet another strong print expected to cast doubt over the Federal Reserve’s ability to kickstart its cutting cycle this quarter. It’s a packed day, with a Reserve Bank of New Zealand decision driving up the kiwi dollar this morning, a crucial Bank of Canada decision this afternoon, and the Fed’s meeting minutes this evening.”

Sam Cornford – Head of Trading

Main Headlines

The kiwi dollar jumped to a three-week high this morning after the Reserve Bank of New Zealand warned that restrictive policy was needed for a sustained period to fully quash price pressures, as it stood pat on its Official Cash Rate at 5.50%. The RBNZ expects inflation to return to within its 1-3% target range by the end of the year.

Data from Britain’s Financial Conduct Authority’s financial lives survey suggested that the cost-of-living crisis is easing somewhat, as the number of people struggling to pay bills and loan repayments fell in January to 7.4m from 10.9m the year earlier. The figure is still well above pre-covid levels however, having risen from 5.8m in February 2020.

GBP

Sterling has very much been driven by the US data and risk sentiment so far this month. The data points over the past week or two have broadly confirmed what we already knew: that the UK growth outlook is picking up. That puts US CPI and the ECB decision tomorrow in the spotlight for sterling traders in the next couple of days and, with headline US inflation likely to land at the same level as the UK equivalent did last month, could reinforce the 1.5% fall from the peak pound excitement from mid-March, when markets looked for a near two-month lag for cuts from the BoE versus the Fed. However, the UK data returns in full force next week, with wage growth and CPI data set to dictate the pound’s direction for the remainder of the month.

EUR

The euro has barely budged this morning, as tentative traders gear up for a data deluge in the second half of the week. The ECB’s quarterly bank lending survey yesterday bolstered hopes that the central bank would be able to signal a June cut at tomorrow’s meeting, after eurozone firms’ loan demand slumped in the first quarter as 4.00% rates continue to bite. We don’t get any euro area data today, but big events in the US and Canada will keep the markets busy ahead of the ECB’s decision tomorrow. Chances are slim for a cut tomorrow, but most expect some heavy dovish signals to open the door for a cut in June.

USD

CPI is in full focus for the FX markets today as traders look to dissect what the March inflation print does for the Fed’s rate trajectory. The consensus points to an uptick in the yearly figure from 3.2% to 3.4%, while month-on-month price growth is expected to ease from 0.4% to 0.3%. Policymakers at the Fed have repeatedly stated that more confidence needs to come from the data that disinflation is progressing sustainably – a 0.3% monthly print is not going to do that just yet. A downside surprise could revive excitement around a potential June cut, while anything at the consensus or above is likely to put it in doubt. With only two further CPI prints to come before then after today’s reading, time is running out for a sustained downtrend to emerge in the data. We also get the meeting minutes from the previous Fed decision later this evening, and USD/CAD is the pair to look out for today, with the Bank of Canada set to release its April policy statement this afternoon following a significant fall in inflation and a weak jobs report over the past month.

Markets

A subdued day of trading yesterday saw US and European stocks close marginally higher, while Asian equities surged by 0.5% despite the announcement from rating agency Fitch that it had downgraded its outlook for China’s A+ rating to negative. In the US Treasury markets, meanwhile, yields fell the most in a day for over a month but failed to stir a boost to risk appetite, as traders held caution ahead of today’s CPI release.

Main Economic Events (All Times CET)

4:00am: Reserve Bank of New Zealand Rate Statement
2:30pm: US CPI Inflation
3:45pm: Bank of Canada Monetary Policy Statement
4:30pm: Bank of Canada Press Conference
6:45pm: Fed’s Barkin speaks
8:00pm: FOMC Meeting Minutes

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