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What’s happening: The US dollar gained on Tuesday, as investors assessed the latest inflation data.
What happened: Data released on Tuesday showed higher-than-expected inflation last month in the US.
The latest CPI report pared back speculations of a rate cut by the US Federal Reserve at its June meeting.
Why it matters: The Labor Department said that the US Consumer Price Index rose 0.4% month-over-month in February, the highest in five months, versus January’s increase of 0.3% and in-line with market estimates. The annual inflation rate accelerated to 3.2% in February, from 3.1% in January, and came in higher than expectations of 3.1%.
Excluding volatile items such as food and energy, US core consumer prices increased by 0.4% from the prior month, while slowing to a near three-year low of 3.8% in February.
While most traders still expect the US Federal Reserve to cut interest rates at its June policy meeting, there are growing speculations of the central bank delaying its dovish stance. Markets are also pricing in two rate cuts of 25 basis points each in 2024.
The US also announced that the government budget deficit had widened to $296 billion in January, from $262 billion in the year-ago month. The figure came in-line with expectations and represented the sixth straight month of a budget deficit.
It was a choppy session for the US dollar on Tuesday. The greenback rose sharply following the inflation report, but reversed trend as the session progressed. Yet the currency ended the day with gains. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.1% to reach 102.96 on Tuesday.
The EUR/USD forex pair edged higher to 1.0930 on Tuesday, after surging to around a two-month high last week. Traders are fully pricing in a first rate cut by the European Central Bank in June and total cuts of 100 basis points by the end of the year.
The GBP/USD forex pair declined around 0.2% to 1.2792 during the session.
What to watch: With no major economic reports scheduled for Wednesday, investors await the release of reports on PPI and retail sales on Thursday. Analysts expect producer prices for final demand in the US to increase 0.3% in February, in-line with the previous month.
Retail sales in the US are projected to grow by 0.8% in February following a 0.8% decline in January.
Context: London stocks closed higher on Tuesday, following the release of UK’s wage growth data.
Details: Data released on Tuesday showed UK wages, excluding bonuses, rising at the slowest pace since October 2022 in the three months to January. The unemployment rate edged higher to 3.9% during the period.
Regular pay, which excludes bonuses, grew by 6.1% year-over-year to £627 per week in the three months to January. The number of employees on payrolls increased by 0.1% to 30.4 million in February.
Markets widely expect the Bank of England to lower interest rates by about 72 basis points (bps) this year, compared to earlier speculations of about 67 bps.
Yields on the UK 10-year benchmark gilt moved lower following the release of data, while the British pound recorded losses on Tuesday, proving a boost to shares.
London’s FTSE 100 gained 1.02% to close at 7,747.81 on Tuesday, notching its best session in around one month and settling at its strongest level since May 2023. The midcap FTSE 250 index gained 0.18% to settle at 19,565.21.
Banks and life insurers were among the top performer on Tuesday, while homebuilder stocks underperformed.
What to watch: Investors await the release of economic reports on GDP growth rate, industrial production and balance of trade from the UK today. The British economy, which stalled year-over-year in December, is expected to contract by 0.3% in January.
Analysts expect industrial production in the UK to remain unchanged in January, following a 0.6% increase in December. The UK’s trade deficit is expected to narrow to £2.3 billion in January, from £2.603 billion in December.
Other Markets: US trading indices closed higher on Tuesday, with the Dow Jones, S&P 500 and Nasdaq 100 up by 0.61%, 1.12% and 1.49%, respectively.
The EU nations are set to give €5 billion military aid to help Ukraine in its ongoing war against Russia. The news sent the RUB/USD slightly lower in forex trading this morning.
Indonesia’s consumer confidence fell to 123.1 in February, from January’s reading of 125.0 amid higher inflation. This marked the weakest reading since September 2023 and exerted pressure on the IDR/USD forex pair.
New Zealand’s annual food inflation slowed to a 33-month low of 2.1% in February, sending the NZD/USD pair higher in forex trading this morning.
Brazil’s Industrial Entrepreneur Confidence Index rose to 52.8 in March, from 52.7 in the earlier month, lending support to the BRL/USD forex pair.
The American Petroleum Institute said US crude oil stockpiles had declined by 5.521 million barrels in the week ending March 8, after an increase of 0.423 million barrels in the prior week. This sent the WTI crude oil prices higher this morning.
UK’s goods trade balance, manufacturing production and construction output, Eurozone’s industrial production, US MBA mortgage applications, crude oil stocks change, gasoline stocks change and distillate inventories, Russia’s balance of trade and consumer price index, China’s new yuan loans, money supply M2, value of outstanding loans and loans to private sector, Turkey’s total motor vehicles production, as well as Brazil’s net payrolls.
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