The Dollar Recovers Losses After Hitting Lowest Levels in Nearly a Month. UK Faces Another Retail Sales Slump. Meanwhile, Hungary Holds Interest Rates Steady Despite Market Expectations.
Dollar Correction
The past two days have seen a clear return of investor confidence in the US dollar. On Monday, the USD did mark its weakest levels against the euro, but since then investors have been returning. Monday was Memorial Day in the US, which means a holiday and reduced market liquidity. After such sharp moves, a correction is not unusual. Yesterday, the dollar was further supported by data from Europe. Annual inflation in France did not rise as expected to 0.9% but instead fell to 0.7%. This indicates that in the second-largest economy of the eurozone, inflation pressure has effectively disappeared. This, in turn, creates more room for interest rate cuts, which work against the euro’s value.
Retail Sales in the UK
The UK yesterday published a report from the Confederation of British Industry. This index is based on surveys of 20,000 retail outlets, where a relatively simple question is asked: did sales increase or decrease? The result of -27 points shows a significant dominance of negative responses over positive ones in May. Analysts had expected a better (or rather less bad) sentiment at -18 points. Thus, this was a negative surprise for the market. It is worth adding that in the last two years, optimism prevailed in these surveys in only three months—and never with such a strong margin as the current negative responses. How did markets react? Although the pound had gained in value since the morning, after the data release it returned to its previous level. The weaker retail sales “killed” investor optimism.
Hungary Holds Rates Steady
The Hungarian Central Bank did not change interest rates. It is important to remember that during the last rate cut in October, inflation was 3.2%. Afterwards, inflation accelerated until February, reaching 5.6%. Currently, inflation is slowing again but still stands at 4.2%. Theoretically, this allows for thoughts about rate cuts. However, some observers point out that after the recent inflation spike, policymakers will want to remain cautious. Nevertheless, there are voices saying Hungary is ready for further rate cuts because the economy, pressured by such high rates, is struggling. A telling sign was yesterday’s reaction in the currency markets: after the Hungarian Central Bank’s decision, the forint strengthened against other currencies. This indicates that investors, seeing rates held steady, bought forints to close unsuccessful investment positions.
Today’s Economic Calendar Highlights:
- 20:00 – USA – Minutes from the FOMC meeting (the equivalent of Poland’s Monetary Policy Council).
Maciej Przygórzewski – Chief Analyst at InternetowyKantor.pl
Source: https://ceo.com.pl/dolar-odbija-po-spadkach-inwestorzy-czekaja-na-protokol-fed-43951
