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What’s happening: The US dollar fell on Friday, recording its first monthly decline of the year.
What happened: The latest data showed the US inflation rate rising in-line with market estimates in April.
While the US dollar declined versus most major currencies, it gained against the British pound on Friday.
Why it matters: The Commerce Department’s Bureau of Economic Analysis said the personal consumption expenditures (PCE) price index rose 0.3% in April, matching the increase recorded in the prior month.
The US core PCE price index, which is the Fed’s preferred gauge to measure inflation, increased by 0.2% in April, compared to a 0.3% gain in March.
The Federal Reserve has increased borrowing costs by 525 basis points since March 2022 in order to cool demand and combat inflation. Traders were earlier expecting the US central bank to announce its first rate cut in March this year, which later got pushed to June. Markets are now expecting the first rate cut in September.
Data released on Thursday showed US GDP growing at an annualised rate of 1.3% in the first quarter, slower than prior projections of 1.6%.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.1% to 104.63 on Friday. The index ended the week in the red and also recorded a 0.4% loss for the month.
The EUR/USD forex pair moved higher following data showing pricing pressures in the Eurozone rising at a faster-than-projected rate in May. The Eurozone’s annual inflation rate accelerated for the first time in five months to 2.6% in May, versus 2.4% in each of the prior two months. The figure also came in higher than market expectations of 2.5%.
France, Germany and Spain also released their inflation rate figures last week, all of which came in higher than market expectations. However, the latest figures have not altered market expectations of a rate cut by the European Central Bank this week.
The EUR/USD forex pair gained around 0.1% to 1.0860 on Friday. The British pound bucked the trend, with the GBP/USD pair slipping to 1.2737.
What to watch: Investors await the release of economic data on manufacturing PMI and construction spending from the US today. The ISM manufacturing PMI, which declined to 49.2 in April, is expected to increase to 49.8 in May. Analysts expect US construction spending to increase by 0.2% in April, compared to a 0.2% decline in March.
Context: European stocks settled higher on Friday as investors monitored the latest inflation data from the Eurozone.
Details: Eurozone inflation accelerated to 2.6% in May, higher than market expectations of 2.5%. The European Central Bank is still projected to lower interest rates at its upcoming meeting on June 6, which would be the central bank’s first cut since 2019.
Other data released on Friday showed Italy’s economy expanding by 0.3% in the first quarter, higher than the 0.1% growth rate recorded in the final quarter of 2023. Italy’s annual inflation rate came in unchanged at 0.8% in May.
Spain’s current account surplus shrank to €3,285 million in March, from €5,911 million recorded in the year-ago month.
The STOXX Europe 600 Index gained 0.32% to close at 518.17 on Friday, with most sectors closing in the positive zone. Utilities stocks rose about 1% during the session, while tech stock declined around 1.5%.
London’s FTSE 100 gained 0.54% to close at 8,275.38 on Friday, while Germany’s DAX 40 and France’s CAC 40 added 0.01% and 0.18%, respectively.
What to watch: Investors await the release of manufacturing PMI from the Eurozone today. The HCOB Eurozone manufacturing PMI is expected to rise to 47.4 in May, notching the strongest level in 15 months, compared to April’s reading of 45.7.
Other Markets: US trading indices closed mostly higher on Friday, with the Dow Jones index and S&P 500 up by 1.51% and 0.80%, respectively, and the Nasdaq 100 down by 0.01%.
US President Joe Biden has allowed Ukraine to use some weapons inside Russia that have been provided by the country. The news sent the safe-haven US dollar index slightly lower in forex trading this morning.
Australia’s CoreLogic Home Value Index increased 0.8% in May. This being the 16th straight month of growth lent support to the AUD/USD forex pair.
Japan’s au Jibun Bank manufacturing PMI was revised slightly lower to 50.4 in May, versus a preliminary reading of 50.5. The figure remaining in the expansion zone and coming in higher than the 49.6 reading a month ago sent the JPY/USD pair higher in forex trading this morning.
South Korea’s S&P Global manufacturing PMI climbed to 51.6 in May, recording the strongest reading since May 2022, which lent support to the KRW/USD forex pair.
Indonesia’s S&P Global manufacturing PMI declined to 52.1 in May, from 52.9 in the prior month. The latest reading signalling expansion in region’s factory activity for the 33rd consecutive month sent the IDR/USD pair higher in forex trading this morning.
Russia’s manufacturing PMI, Australia’s commodity prices and CoreLogic home value index, France’s manufacturing PMI and government budget value, Spain’s tourist arrivals, manufacturing PMI and new passenger vehicles, Turkey’s inflation rate, manufacturing PMI, producer prices, vehicle sales, balance of trade and total vehicles production, Italy’s manufacturing PMI, Germany’s manufacturing PMI, UK’s manufacturing PMI, Mexico’s business confidence, foreign exchange reserves and manufacturing PMI, Brazil’s manufacturing PMI, balance of trade and Central Bank of Brazil focus market readout, Canada’s manufacturing PMI, US S&P Global US manufacturing PMI, South Africa’s manufacturing PMI, as well as Argentina’s tax revenue.
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