US CPI back in the spotlight

Early May has seen FX markets continuing to gyrate in line with headlines concerning US-Iran peace negotiations. As yet, concrete signs of progress are few and far between. Still, Middle East events and oil price dynamics remain the primary catalyst for markets, overshadowing more typical data drivers and central bank decisions. The one exception comes from Japan, where MoF yen buying efforts have helped to stabilise USDJPY around 157, with negative implications for broad dollar valuations.

This should reverse slowly in the coming weeks, given that macro fundamentals still support a weaker yen on balance. JPY developments aside, the week ahead sees no further G10 central bank decisions and is quieter on the data front as well. US CPI tops the docket, and is, we suspect, set to reinforce the message from April payrolls numbers. Inflation, not the labour market, should be the primary concern for the Fed at present. Of course, this is likely to once again be eclipsed by developments in the Middle East. But without any greater clarity on the prospects for a peace agreement, we are inclined to view risks as skewed in favour of dollar upside in the coming week.

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Authors:

Nick Rees, Head of Macro Research

Barry van der Laan, Senior FX Market Strategist

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