BOE Policy and U.S. CPI will hold volatility next week

U.S. dollar retreated from the weekly high 102.404 and settled at 101.2820, down by 0.38% last week. Currency slipped from the weekly high after the Federal Reserve raised interest rates by a quarter of a percentage point and signaled it may pause further increases.

The European Central Bank (ECB) eased the pace of its interest rate hikes and kept its options open on future moves as it fights stubbornly high eurozone inflation.

The 25 basis point increase to the ECB’s three policy rates was the smallest since it started lifting them last summer.

The interest rate for the ECB’s main refinancing operations will rise to 3.75%, while the deposit facility rate will climb to 3.25%, and the marginal lending facility rate will move up to 4.00%. The ECB also said it will continue to reduce its balance sheet by its current rate of €15 billion (€1 = $1.1023) per month until the end of June.

Bullions posted a speculative jump last week. Prices tested a lifetime high of 61845. It briefly touched a record high after the Federal Reserve hiked interest rates but flagged a more stringent approach to raising rates further amid worsening economic conditions. Gold prices made a high of 61845 and settled with a gain of 1.18% at 60628. Silver gained 4% and after hitting a high of 78292, settled at 77047.00.

Base metals struggled for direction last week. After hitting a weekly low of 733.30, it settled at 743.60, with a minor gain of 0.14%. Aluminum settled down by 0.93% at 208.05. Zinc prices were able to recover half percent. Lead prices dropped slightly by 0.24% at 183.80.

Crude prices extended its fall for the third consecutive week, and after hitting its multi week low. Settled at 5841, down by 7.08% as demand concerns in major consuming countries amid Fed rate fear weighed on the sentiment.

High impacted Economic Data and Events


CPI Numbers – Wednesday

The U.S. is to release April inflation. Forecast shows that the core consumer price index, which excludes volatile food and fuel prices, to increase by 5.5% on a year-over-year basis, after a 5.6% increase a month earlier. The headline rate of inflation is expected to increase by 5% annually, unchanged from the previous. While, monthly CPI numbers expect to come at 0.4% higher from 0.1% previous month reading.

That would indicate that while price pressures are moderating, they remain sticky.

The Federal Reserve raised interest rates by a quarter of a percentage point and signaled it may pause further increases, in last week’s policy.

A weaker-than-expected reading would bolster expectations for a Fed rate cut later this year but the above forecast numbers would support the case for the Fed to keep rates higher for longer.

Core PPI – Thursday

The U.S. is to release producer price index numbers on Thursday along with weekly numbers on initial jobless claims. Data foreseen is to expand by 0.3%, after a contraction of -0.5%. That would have a positive impact on the dollar.

 Weekly jobless claims expected to come at 245k slightly higher from 242k, that would have a neutral impact on the market.


Bank of England policy – Thursday

The Bank of England will release its monetary policy decision. Foreseen is to raise interest rates by another 25 basis points as it continues its battle against inflation.

Inflation in the U.K. is running at 10.1%, markedly higher than in the Euro zone, exacerbated by soaring food costs and shortages in the labor market linked to Brexit, keeping wages high.

The combination of high inflation and a tight labor market are fueling bets for further rate hikes this year so the central bank’s updated projections for growth and inflation will be closely watched.

GDP numbers – Friday

The U.K. is to release data on first quarter GDP which is expected to indicate that growth remained weak in the first three months of the year. Data is foreseen at 0.0% as compared to previous month 0.0%.