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    Dollar strengthens after Core CPI beats expectations and wages rise

    USD

    The dollar rose on Friday after Core CPI came out higher-than-expected, increasing the likelihood that the Fed might raise interest rates early.

    Janet Yellen had specifically said in commentary in March that she would not raise interest rates if Core CPI and Wages fell – and today’s data showed these metrics doing the opposite and actually beating forecasts.

    The actual figures showed Core CPI yoy in April at 1.8%, when it had been estimated to slow a basis point to 1.7%. Mom it came out at 0.3%, which was higher than the previous 0.2% and than estimates of 0.2%.

    Headline CPI, meanwhile, showed a -0.2% fall in line with expectations. Real Average Weekly Earnings rose 2.3% yoy – beating the 2.1% of a year ago.

    In the evening Fed Chair Janet Yellen, spoke, but showed no major change in stance, saying simply that she saw a rate rise at some point in 2015 as “appropriate”, but that there was still some way to go on employment.

    EUR

    The euro fell in most pairs on Friday, but more as a result of other currencies weakening, such as the dollar, than due to any inherent weakness, since data was on the whole as expected or better.

    The IFO Sentiment survey showed a rise in the Current Assessment to 114.3 and the Business Climate came out better-than-expected at 108.5 when it had been forecast to fall by 3 basis points from 108.6 to 108.3.

    German Q1 GDP came out at 1.1% yoy in line with expectations.

    ECB President Draghi spoke on the economy at an economic forum in Portugal, in which he reiterated his usual upbeat rhetoric about the recovery in the euro-zone, saying that inflation expectations have recovered from their trough and the outlook was the best it had been for 7-years.

    GBP

    The pound traded mixed on Friday as dollar strength led to weakness in cable and the euro outperformed the pound in its pair.

    The currency had enjoyed a good week after Retail Sales data showed a 1.2% expectation-beating rise in April, when only 0.2% had been forecast.

    Gains petered out on Friday, however, as market sentiment was dominated by U.S data. Out the U.K we got Public Sector Net Borrowing, which came out lower-than-estimated, and was therefore favourable to sterling, however, it was not enough to push it higher versus key counterparts.

    BOE governor Carney spoke in Portugal at a central bankers cabal in which he said that productivity growth was picking up in the U.K, and put most of the recent weakness in inflation down to falling food and energy prices.

    JPY

    The dollar rallied versus the yen on Friday seemingly as a result of US CPI data and was trading at 121.55 to the dollar at 16.00 in the London session.

    The Bank of Japan did not announce any new easing measures, following today’s monetary policy committee meeting, as expected. The annual target for expansion of the monetary base remains at yen 80 trillion.

    The policy was approved on an 8-1 voting with Kuichi as usual the sole dissenter, continuing to insist the QE programme should not allow a greater expansion of the monetary base than yen 45 trillion.

    The statement from the meeting was virtually unchanged compared with the previous two meetings and hence the BOJ does not signal any imminent easing measures. The central bank continues to expect a moderate recovery of the economy and that inflation ( excluding the sales tax hike) will be about 0.0% yoy in the short term.

    As most economists believe it will be impossible for the 2.0% inflation target to be reached in 2016, there is still little pressure on the BOJ to expand its easing programme.

    Wage growth appears to have picked as a result of the spring negotiations although this needs to be confirmed with the data.

    USD

    The dollar rose on Friday after Core CPI came out higher-than-expected, increasing the likelihood that the Fed might raise interest rates early.

    Janet Yellen had specifically said in commentary in March that she would not raise interest rates if Core CPI and Wages fell – and today’s data showed these metrics doing the opposite and actually beating forecasts.

    The actual figures showed Core CPI yoy in April at 1.8%, when it had been estimated to slow a basis point to 1.7%. Mom it came out at 0.3%, which was higher than the previous 0.2% and than estimates of 0.2%.

    Headline CPI, meanwhile, showed a -0.2% fall in line with expectations. Real Average Weekly Earnings rose 2.3% yoy – beating the 2.1% of a year ago.

    In the evening Fed Chair Janet Yellen, spoke, but showed no major change in stance, saying simply that she saw a rate rise at some point in 2015 as “appropriate”, but that there was still some way to go on employment.

    EUR

    The euro fell in most pairs on Friday, but more as a result of other currencies weakening, such as the dollar, than due to any inherent weakness, since data was on the whole as expected or better.

    The IFO Sentiment survey showed a rise in the Current Assessment to 114.3 and the Business Climate came out better-than-expected at 108.5 when it had been forecast to fall by 3 basis points from 108.6 to 108.3.

    German Q1 GDP came out at 1.1% yoy in line with expectations.

    ECB President Draghi spoke on the economy at an economic forum in Portugal, in which he reiterated his usual upbeat rhetoric about the recovery in the euro-zone, saying that inflation expectations have recovered from their trough and the outlook was the best it had been for 7-years.

    GBP

    The pound traded mixed on Friday as dollar strength led to weakness in cable and the euro outperformed the pound in its pair.

    The currency had enjoyed a good week after Retail Sales data showed a 1.2% expectation-beating rise in April, when only 0.2% had been forecast.

    Gains petered out on Friday, however, as market sentiment was dominated by U.S data. Out the U.K we got Public Sector Net Borrowing, which came out lower-than-estimated, and was therefore favourable to sterling, however, it was not enough to push it higher versus key counterparts.

    BOE governor Carney spoke in Portugal at a central bankers cabal in which he said that productivity growth was picking up in the U.K, and put most of the recent weakness in inflation down to falling food and energy prices.

    JPY

    The dollar rallied versus the yen on Friday seemingly as a result of US CPI data and was trading at 121.55 to the dollar at 16.00 in the London session.

    The Bank of Japan did not announce any new easing measures, following today’s monetary policy committee meeting, as expected. The annual target for expansion of the monetary base remains at yen 80 trillion.

    The policy was approved on an 8-1 voting with Kuichi as usual the sole dissenter, continuing to insist the QE programme should not allow a greater expansion of the monetary base than yen 45 trillion.

    The statement from the meeting was virtually unchanged compared with the previous two meetings and hence the BOJ does not signal any imminent easing measures. The central bank continues to expect a moderate recovery of the economy and that inflation ( excluding the sales tax hike) will be about 0.0% yoy in the short term.

    As most economists believe it will be impossible for the 2.0% inflation target to be reached in 2016, there is still little pressure on the BOJ to expand its easing programme.

    Wage growth appears to have picked as a result of the spring negotiations although this needs to be confirmed with the data.


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