Focus shifts to BoE, USD stabilizes after inflation data

Following the slide seen with the initial reaction to April inflation data on Wednesday, the US Dollar Index stages a rebound early Thursday. The Bank of England (BoE) will announce monetary policy decisions later in the day and Governor Andrew Bailey will comment on the policy outlook and respond to questions from the press. April Producer Price Index (PPI) and weekly Initial Jobless Claims will be featured in the US economic docket.

Bank of England Preview: Bailey to break Pound’s rally with reluctance to raise rates further.

The US Bureau of Labor Statistics announced on Wednesday that annual inflation in the US, as measured by the change in the Consumer Price Index (CPI), edged lower to 4.9% in April from 5% in March, compared to the market expectation of 5%. US Treasury bond yields turned south after inflation data and the benchmark 10-year yield snapped a four-day winning streak and lost more than 2% on the day. In turn, the US Dollar Index closed in negative territory. Mixed market mood, however, helped the USD stay resilient against its rivals in the late American session.

During the Asian trading hours on Thursday, monthly CPI in China decreased 0.1% in April, brining the rate of annual change down to 0.1% from 0.7% in March. Meanwhile, the data from Australia revealed that the Consumer Inflation Expectations climbed to 5% in May from 4.6% in April, matching the market expectation. AUD/USD stays on the back foot early Thursday and trades near 0.6750.

The BoE is widely expected to raise its policy rate by 25 basis points to 4.5% following the May policy meeting. The BoE will also release its revised projections for growth and inflation. Market participants will pay close attention to the vote split and comments from Bailey regarding additional rate increase in the near future. GBP/USD closed virtually unchanged for the second straight day on Wednesday and trades in a tight channel at around 1.2600 ahead of the event.

Bank of England Preview: A risk event for the GBP/USD rally.

EUR/USD registered small daily gains on Wednesday but failed to reclaim 1.1000. As market participants assess the latest remarks from European Central Bank (ECB) officials, the pair stays in negative territory at around 1.0950.

Gold price spiked to the $2,050 area after US inflation data but failed to preserve its bullish momentum. XAU/USD stays indecisive near $2,030 early Thursday.

Pressured by falling US yields, USD/JPY lost nearly 100 pips on Wednesday before going into a consolidation phase slightly above 134.00 early Thursday. The Bank of Japan’s Summary of Opinions for April meeting reiterated that they must continue the current easy policy given uncertainty over global outlook.

Bitcoin fluctuated in a wide range on Wednesday but ended up closing the day flat below $28,000. BTC/USD edges lower toward $27,500 early Thursday. Ethereum gained traction in the early American session but failed to cling to its recovery gains on Wednesday. In the European morning, ETH/USD continues to stretch lower toward $1,800.