Aurelia Butler

MADRID (Reuters) – Underlying inflation in the euro zone is proving sticky and the European Central Bank is less optimistic about its trajectory than about overall price pressures, ECB Vice President Luis de Guindos said on Wednesday. “We believe core inflation provides a better signal of medium-term inflationary trends,” de Guindos said in Madrid. “Headline inflation will continue to decelerate but on core inflation we are not so optimistic.” More

NEW YORK (Reuters) – The dollar dropped sharply on Wednesday after data showed U.S. consumer prices rose less than expected in March, raising expectations that the Fed is likely to stop hiking rates after a possible increase in May. The Consumer Price Index (CPI) climbed 0.1% last month, below economists’ expectations for a 0.2% gain, and down from a 0.4% increase in February. In the 12 months through March, the CPI increased 5.0%, the smallest year-on-year gain since May 2021. The CPI rose 6.0% on a year-on-year basis in February.Excluding the volatile food and energy components, the CPI increased 0.4% last month after rising 0.5% in February. Sticky rents continued to drive core CPI.“Headline inflation coming down more than expected is backing the view of the Fed being basically one more and done,” said Joe Manimbo, senior market analyst at Convera in Washington, D.C. “The market was just really cautious ahead of the data, as if it had been hotter than expected it might suggest that June might also be a live meeting. But I think with inflation taking a big step down from 6% to 5%, if that sustains, that could give the Fed leeway to cut rates later this year if we see a sharp slowdown in the economy,” Manimbo added.The dollar index was last at 101.68, down 0.41% on the day and below the level of around 102.11 before the data. The euro reached $1.09900, the highest since Feb. 2, and was last at $1.0967, up 0.48% on the day. The dollar dipped to 133.04 Japanese yen, from around 133.85 before the data.Fed funds futures traders are pricing in 69% probability that the Fed will raise rates by an additional 25 basis points at its May 2-3 meeting, down from around 76% before the data.Retail sales data on Friday will be analyzed next for how consumer spending is being affected by higher prices. The Fed will release minutes from its March 21-22 meeting later on Wednesday. ========================================================Currency bid prices at 9:10AM (1310 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index 101.6800 102.1200 -0.41% -1.749% +102.1600 +101.5000 Euro/Dollar $1.0967 $1.0914 +0.48% +2.34% +$1.0990 +$1.0913 Dollar/Yen 133.0400 133.7100 -0.49% +1.48% +134.0400 +132.7400 Euro/Yen 145.92 145.89 +0.02% +4.01% +146.3800 +145.7900 Dollar/Swiss 0.8978 0.9034 -0.61% -2.89% +0.9034 +0.8970 Sterling/Dollar $1.2445 $1.2427 +0.14% +2.91% +$1.2470 +$1.2400 Dollar/Canadian 1.3458 1.3466 -0.07% -0.69% +1.3489 +1.3433 Aussie/Dollar $0.6701 $0.6654 +0.73% -1.68% +$0.6723 +$0.6649 Euro/Swiss 0.9846 0.9855 -0.09% -0.50% +0.9870 +0.9841 Euro/Sterling 0.8810 0.8782 +0.32% -0.37% +0.8819 +0.8781 NZ $0.6224 $0.6192 +0.53% -1.96% +$0.6242 +$0.6184 Dollar/Dollar Dollar/Norway 10.4500 10.5470 -0.83% +6.57% +10.5670 +10.4130 Euro/Norway 11.4635 11.5157 -0.45% +9.24% +11.5460 +11.4319 Dollar/Sweden 10.3373 10.4583 -0.50% -0.68% +10.4554 +10.3070 Euro/Sweden 11.3384 11.3953 -0.50% +1.69% +11.4125 +11.3225 More

The Consumer Price Index (CPI) climbed 0.1% last month after advancing 0.4% in February, the Labor Department said on Wednesday. In the 12 months through March, the CPI increased 5.0%, the smallest year-on-year gain since May 2021. The CPI rose 6.0% on a year-on-year basis in February. The annual CPI peaked at 9.1% in June, which was the biggest increase since November 1981, and is subsiding as last year’s large rises drop out of the calculation. Inflation by all measures remains more than double the Fed’s 2% target.Gasoline prices are likely to rebound in the months ahead after Saudi Arabia and other OPEC+ oil producers early this month announced further oil output cuts. Economists polled by Reuters had forecast the CPI gaining 0.2% and advancing 5.2% year-on-year. The inflation data came on the heels of last Friday’s employment report, which showed a solid pace of job growth in March and the unemployment rate falling back to 3.5%. Persistently high inflation, labor market tightness and signs that financial market stress, wrought by last month’s collapse of two regional banks, is easing should allow the Fed to continue prioritizing restoring price stability. Financial markets are leaning toward the U.S. central bank increasing rates by another 25 basis points at the May 2-3 policy meeting, according to CME Group’s (NASDAQ:CME) FedWatch tool.The Fed last month raised its benchmark overnight interest rate by a quarter of a percentage point, but indicated it was on the verge of pausing further rate increases in a nod to the financial market turmoil. It has hiked its policy rate by 475 basis points since last March from the near-zero level to the current 4.75%-5.00% range. Excluding the volatile food and energy components, the CPI increased 0.4% last month after rising 0.5% in February. Sticky rents continued to drive the so-called core CPI. With independent measures showing rents on a downward trajectory, however, housing inflation is expected to start subsiding in the second half. The rent measures in the CPI tend to lag the independent gauges. Nevertheless, the disinflation road is likely to be bumpy, with pressure coming from the cost of services away from housing. In the 12 months through March, the core CPI gained 5.6% after rising 5.5% in February. That ended five straight months of slow increases in the year-on-year core CPI. More

(Reuters) – Traders of futures tied to the Federal Reserve’s policy rate on Friday were less sure the U.S. central bank will raise its benchmark rate any further after the government reported March consumer prices rose less than expected.U.S. short-term interest rate futures rose after the report, and now reflect about a 60% chance of a quarter-of-a-percentage-point rate hike in May, versus about a 73% chance seen before the data. The current target range is 4.75%-5.00%. More

US inflation eased last month to its lowest level in nearly two years but an uptick in core prices will keep pressure on the Federal Reserve to press ahead with another interest rate increase in May.The consumer price index for March rose by 5 per cent year-on-year, according to data published by the Bureau of Labor Statistics on Wednesday. That marks a significant deceleration compared with the 6 per cent recorded in February as well as the lowest level since May 2021. On a monthly basis, consumer prices increased just 0.1 per cent, shy of economists’ forecasts. However, core CPI, which strips out volatile energy and food costs, rose by 5.6 per cent year-on-year following a 0.4 per cent monthly jump, suggesting that price pressures for some goods and services are still elevated. The latest inflation data is one of the most important economic releases ahead of the Fed’s next policy meeting in early May. It comes after the March jobs report, released on Friday, showed the labour market is still strong despite a decline in monthly job creation.

So far, Fed officials do not yet appear to have forged a consensus over whether another quarter-point rate rise is necessary before the central bank can call time on its historically aggressive monetary policy campaign to battle high inflation. Some officials believe that a credit crunch in the wake of several recent US bank failures could negate the need for another increase. Last month, most officials backed an additional increase. No cuts are forecast until 2024.Those who have indicated support for another rate rise argue that inflation is still far too high and the economy has repeatedly defied expectations of a marked slowdown. They also argue that credit conditions may not tighten sufficiently following the failures of Silicon Valley Bank and other lenders to enable the Fed to pause at its next meeting.However some officials have urged a cautious approach, including Austan Goolsbee, president of the Chicago Fed and a voting member of this year’s policy-setting Federal Open Market Committee. More

Annual retail inflation eased to 5.66% in March from 6.44% in the previous month, government data showed on Wednesday. The bank targets a range of 2%-6%.A Reuters poll of 39 economists had forecast an annual inflation rate of 5.80% in March.Food inflation, which accounts for nearly half of the overall consumer price basket, moderated to 4.79% as vegetable prices eased, offsetting surging cereal prices.Last week, The Reserve Bank of India (RBI) surprised markets by holding its key repo rate steady after six consecutive hikes, saying action over the past 12 months is still playing out and would increasingly weigh on the future inflation trajectory.RBI’s sudden pause came even as retail inflation has remained above the central bank’s mandated target range for 10 out of the 13 readings.However, India Meteorological Department’s Tuesday forecast of normal monsoon rains in 2023 cheered policy makers as agricultural activities in the country are heavily dependent on seasonal rains that begin from June. More