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By xemarketanalysis April 30, 2018 12:16 pm
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    XE Market Analysis: US Dollar Firm Supported by Inflation Data


    • US Core PCE price index rises 1.9%, consumer spending increases 0.4%.
    • GBP soft as banks revise forecasts for UK rate hikes.
    • German inflation unexpectedly slows, supports ECB caution.
    • Mexican economic growth accelerates 1.1% in the first three months of 2018.


    US consumer prices accelerated this year to March, with Federal Reserve's preferred inflationary measure (core PCE price index) surging to 1.9%, just shy of their 2% target. The data when coupled with other inflationary releases should support the Fed's plans to continue tightening monetary policy when they meet this week.


    The US Dollar is near a 3-month high versus the Euro, and rose to a 3-month high versus the Pound, as investors continue to adjust their bets on the Greenback weakening. Against a basket of currencies, it is now at a key level that could determine whether it simply gives back the ground it has made over the past month, or whether it can head higher. This week we have the Federal Reserve's interest rate meeting as well as the April employment report.


    The Pound has begun the week generally lower as investors rapidly reverse bets that the Bank of England will raise interest rates next week. Michel Barnier said that the UK and the EU need to accelerate work on the Irish border ahead of June's summit, as this remains the key outstanding issue on the future relationship. The focus this week will be on whether the purchasing manager's indexes show a bounce back in activity for April after March saw a slump which was largely blamed on disruption from heavy snow.


    Weaker-than-expected German data has weighed on the Euro with retail sales unexpectedly dropping in March and inflation slowed. This has added to expectations that the European Central Bank is further away from completely unwinding its stimulus, following last week's meeting where Draghi said they are assessing the growth to slow down.


    The Canadian Dollar remains stable at lower levels versus the US Dollar, with oil prices down on the day. There was no deal on NAFTA at the end of last week, though Canadian negotiators noted significant progress having been made. This week we have monthly GDP for February (a solid 0.3% gain is expected) while BoC Governor Steven Poloz is also speaking. 


    The Australian Dollar remains stuck near a 4-month low versus the US Dollar, just above a key support level at 75 cents as market expectations continue to diverge for US and Oz interest rates. Ahead of the Reserve Bank of Australia's meeting overnight, there is some speculation that they could trim their forecast for economic growth, even as it nudges up the outlook for inflation. The central bank is currently expected to keep rates on hold until the summer of 2019.


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