Inflation Eases, US Dollar Rebounds: BoE & PPI Awaited

Over the past 24 hours, volatility significantly increased as the US released its Consumer Price Index. The monthly inflation data came as markets expected, but the yearly inflation rate fell to 4.9%. The inflation rate is now at its lower since May 2021; the only concern for regulators is the Core Consumer Price data, which remains relatively high. 

The US dollar price declined after the announcement, shaving 0.60% of its value against the Euro. This was in response to the inflation data, which did not point towards more interest rate hikes nor indicate the Fed would not pivot later in the year. However, investors must continue monitoring the price action as most exchange rates retraced after the bullish price movement. In addition to this, the US Dollar index significantly rose this morning and has fully regained yesterday’s losses. For this reason, technical analysis will be significant to short-term traders. 

Investors throughout the day will be focusing on the price movement of the Dollar, the Bank of England’s rate decision, and the US Producer Price Index. The Producer Price Index is also essential data on the overall inflation story. 

GBP/USD - The Dollar Rebounds as Investors Await BoE Rate Decision

The Pound against the US Dollar is struggling to maintain momentum outside the recent price range between 1.2591 and 1.2655. This may be related to investors awaiting confirmation from the Bank of England. It is almost certain the central bank will stick to a 0.25% rate hike. This will be their 12th straight hike. However, investors will be more interested in the governor's forward guidance and the committee’s votes. 

HSBC senior economist Elizabeth Martins expects the Bank of England to hike 25 basis points but has two committee members potentially vote for a rate hike of 50 basis points. Previously, the votes were more dovish, with two members voting for a “hold”. Therefore, if two members vote for a 50 basis point hike, the Pound may find support.  HSBC advised that hawkish votes are possible since the BoE’s forecast had the inflation rate at 9.2%, but inflation data came in at more than 10%. In addition to this, wages unexpectedly also continued to rise. 

US investors will continue monitoring the inflation data to determine if the Federal Reserve will likely pivot later in the year. This afternoon, the US will release the Producer Price Index, which looks at inflation at the producer stage, not the consumer level. Economists expect the PPI to read 0.3%, which is not necessarily high but much higher than the previous two months. If the PPI reads 0.3% or below, it can continue to support a less restrictive monetary policy. 

GBP/USD 2-Hour Chart on May 11th

The price movement of the exchange rate continues to move in favour of the US Dollar. The decline is unrelated to the Pound but the appreciating Dollar, correcting yesterday’s price decline. At the moment, trend-based indicators are pointing towards a downward price trend. Moving averages have formed crossovers, the Parabolic SAR also points towards a bearish trend, and the stochastic oscillator is crossed downwards. Investors are only cautious. The indications do not change after today’s news or the exchange rate to find support at the support levels from May 9th and May 5th. 

NASDAQ - Investors Attention Fixed on PPI Release

The NASDAQ rose by more than 1.05% during yesterday’s trading sessions after being supported by a slightly lower inflation reading. The stock market can continue to be supportive if today’s inflation comes in lower than expected again. This is because lower inflation can support consumer demand, the price of raw materials, and lower interest rates after the summer months. The price is now trading at its highest price since August 19th. 

As mentioned above, the main price driver will be the inflation data, and investors will also be monitoring the Dollar’s bullish trend, which can be an issue for stocks. However, investors will also watch JD’s earnings report, which will be released later today. Analysts expect JD to report earnings per share of $0.46. The stock and the NASDAQ may be supported if the figure is higher. In addition, investors will also be hoping for a less hawkish stance by the Bank of England and the European Central Bank. This morning, officials of the ECB advised more interest rate hikes will come.

NASDAQ 1-Hour Chart on May 11th

Technical indicators continue to signal a bullish price movement for the NASDAQ. Investors will hope for a bullish breakout at $13,385, which may renew more bullish indications.

Summary:

• The US monthly inflation data came as markets expected, but the yearly inflation rate fell to 4.9%.
• The US Dollar declined after the CPI announcement but quickly gained during this morning’s European session — the gains against all currencies. 
• HSBC senior economist Elizabeth Martins expects the Bank of England to hike 25 basis points. Mrs. Martin also advised two members of the committee may potentially vote for a rate hike of 50 basis points.
• The NASDAQ rose by more than 1.05% after being supported by a slightly lower inflation reading. The NASDAQ’s price is now trading at its highest price since August 19th.