Powell Warns Fed ‘Will Keep Going‘, UK CPI Hits 40-Year Highs

US Dollar Fighting to recover following large losses yesterday. Powell warns Fed will keep going until inflation target hit following mixed retail sales data. Hawkish BOE expectations rise as UK inflation hits 40-year highs. Canadian CPI up next. Equities pause following solid rally yesterday. Oil drops as EU states oppose full Russian oil ban. 

Key Factors for Today

• US Retail sales resilient in April 

• Powell warns Fed will “keep going” on rates until inflation target met

• UK CPI Hits 40-year highs at 9%

• Oil slips as EU ban on Russian oil looks unlikely 

Coming Up

• CAD CPI

• OIL EIA Inventories

• AUD Employment data 

US Dollar Firmer Following Yesterday’s Losses

The US Dollar starts the day on a better footing, recovering part of the losses seen yesterday in response to a mixed set of US retail sales for April. The Dollar Index fell by almost 1% on the day as headline retail sales printed 0.9%, slightly below the 1% estimate, marking a slowdown from the prior month’s 1.4%. However, core retail sales were higher than forecast at 0.6% vs 0.4% expected, though still well down from the prior month’s 2.1% reading. 

Powell Sounds More Aggressive on Rates

Fed chairman Powell reiterated his message yesterday that the fed is determined to bring inflation down. However, Powell once again warned that in doing so, the central bank risks creating a hard landing for the US economy with unemployment likely to rise. Powell doubled down on guidance for further .5% hikes in June and July and looking ahead said of rate increases that the Fed will keep going until it brings inflation down to target. 

Equities Pause Following Yesterday’s Gains

Equities markets have started the European session with a more offered tone in light of current USD buying. However, on the back of solid gains yesterday across the board, current selling might represent a blip before yesterday’s rally continues. The S&P saw gains of more than 2% yesterday amidst the deeper USD correction while in Europe both the FTSE and the DAX printed fresh multi-week highs. 

UK CPI Hits 40-Year Highs at 9%

In FX, we saw a strong Major FX/USD short squeeze yesterday as a weaker USD allowed for G10 FX counterparts to make solid gains. GBP and AUD in particular were both seen benefitting from weakness in the Dollar. While these moves have paused across the European open today, any resumption in bearish USD action should propel GBP and AUD into the limelight once again. UK CPI was seen rising to 40 years highs of 9% today. While slightly below the 9.1% estimate, the jump from last month’s 7% reading makes worrying reading for the BOE with traders now anticipating more aggressive action from the bank at the next meeting. 

Gold & Silver Remain Weak 

Precious metals remain subdued at the European open on Wednesday. Both gold and silver failed to capitalise on yesterday’s USD weakness as soaring equities prices saw investors looking elsewhere for returns. While both metals are sitting off the month’s lows for now, overall tone remains heavy with further downside a clear risk. 

Oil Lower As Russia Ban Looks Less Likely

Oil prices have been back under pressure again today. Despite the drop in USD yesterday, crude prices fell back as traders focused on the broader supply/demand backdrop. With several EU states showing clear opposition to a ban on Russian oil, crude prices slipped as supply fears waned. Expectations of an EU-wide ban have been a big driver of recent upside and with such a move now looking less likely, speculators have been covering positions. The EIA releases its latest weekly report today with a further inventories surplus likely to add to bearish pressure.