UK unemployment rises, Trump delays Iran attack and USD rises
Trump's announcement that he would “hold off” an attack on Iran scheduled for Tuesday at the request of Gulf leaders. Trump further stated that the US would be “probably satisfied” if it could reach an agreement with Iran that prevents Tehran from obtaining a nuclear weapon, per the Guardian. However, the US President stated that Washington was prepared to attack if an acceptable deal wasn’t reached but didn’t set a deadline.
USD:
Markets are now anticipating the Fed will have to tighten policy to contain inflation with the Strait of Hormuz remaining closed and energy markets disrupted. Traders are pricing in a 35.0% probability that the Fed will raise interest rates by 25 basis points by year-end, according to the CME.
The USD has strengthened recently, with GBP/USD trading lower at 1.3400 (1.3500 last week) and EUR/USD at 1.16 (1.1400 in January).
GBP:
The UK currency has held up better than the EUR during the past week, sustaining GBP/EUR above 1.1525. GBP/USD remains weak around 1.3415, pressured by UK political turmoil. The UK Unemployment Rate climbed to 5.0% in the three months to March after reporting 4.9% in the previous reading, according to the Office for National Statistics (ONS) on Tuesday. This figure came in above the market consensus of 4.9%.
Meanwhile, the number of people claiming jobless benefits rose by 26.5K in April, compared with a revised increase of 4.9K in March and the expected 27.3K gain. The Employment Change arrived at 148K in March, versus 25K seen in February.
EURO:
The euro-zone faces plenty of internal headwinds at the moment, but hawkish comments (increasing rates) have helped bolster the currency. Declining service and manufacturing data alongside falling confidence combine to pressure the single currency.
CANADA:
Looking ahead, traders brace for the Canadian Consumer Price Index (CPI) inflation report, which is due later on Tuesday. The headline CPI is expected to show a rise of 3.1% year-over-year in April, compared to 2.4% in March. On a monthly basis, the CPI is projected to show an increase of 0.6%, versus 0.9% prior.
AUSTRALIA:
The Reserve Bank of Australia (RBA) minutes showed eight of nine board members backed the May rate hike to 4.35%, citing rising inflation risks from the Gulf conflict. One member preferred to await further data.
“Members noted that inflation had been well above target in the months prior to the onset of the conflict in the Middle East,” the RBA minutes said. Members agreed that monetary policy could not prevent a near-term increase in the price level as higher fuel prices worked their way through to final prices.