The USD is consolidating against major peers following its nearly two-month low last week. Investors are anticipating a series of US economic data releases today ahead of the Federal Reserve's monetary policy meeting next week, which might inject some volatility into the otherwise calm financial markets.
Key US data today, featuring retail sales, producer price inflation, and initial jobless claims. US Treasury yields have climbed for three consecutive days ahead of these releases, fuelled by persistent inflation data surpassing expectations. Following Tuesday's higher-than-anticipated CPI figure, attention now turns to the producer price index, considered a robust leading indicator for the Fed's preferred inflation measure (PCE). Forecasts anticipate the PPI to mirror its 0.3% monthly increase from January, alongside expectations of a positive 0.8% retail sales growth in February.
Concurrently, with jobless claims projected to remain subdued around 218 thousand, market consensus leans toward a favourable outlook for the USD from today's macroeconomic data. Nevertheless, any downside surprises could dampen the Greenback's performance, particularly since today's releases encompass all three crucial data categories currently monitored by the Fed and markets to assess economic trajectory: inflation, labour market dynamics, and consumer expenditure. Recent data trends have marginally influenced rate expectations. While the Fed is expected to maintain rates next week, focus will shift to the bank's updated economic forecasts, likely to have more significant implications for the market.
The EUR strengthened against other G10 currencies despite hotter-than-anticipated US inflation data, as market sentiment remained unfazed regarding potential Fed interest rate reductions in the near future. European equities reached new record peaks, while the spread between Italian and German bond yields, indicative of the risk premium investors demand for holding bonds from the eurozone's most heavily indebted nations, reached its lowest level in 26 months. Favourable returns and a growing appetite for riskier investments bolstered demand for Italian government bonds, providing support for the EUR/USD pair.
