all eyes on cpi, beige book....currency

FX Awaits CPI, Beige Book for Inflation Hints by Ashraf Laidi


4:30 am Bank of England minutes released. 5:00 am Feb Trade Balance (exp EUR 4.0 bln, prev -EUR 2.2 bln), 8:30 am Mar CPI (exp 0.5%, prev 0.4%) Mar CPI - excl food and energy (exp 0.2%, prev 0.3%) 12:15 pm Fed Governor Ferguson speaks on deficit in NC. 2:00 pm Fed's Beige Book

All eyes shift to the US CPI report and the Beige Book from the Fed for the latest data on inflation, which should further steer interest rate expectations post June. Tuesday's PPI report showing a benign 0.1% rise in the core figure for the third out of the last four months causing some economists to become a little apprehensive in their rate hike projections.

Today's less predictable report shall be the beige Book report due at 2:00 pm, whose qualitative information from the 12 different Federal Reserve Districts could once again show evidence of inflationary pressures unlike what is communicated in the PPI and the CPI.

Recall that it was last month's release of the Fed's Beige Book (March 9) which sent 10-year yields soaring to 5.51% for the first time since July 2004 after the report stated that sharp benefit costs gains were fairly "widespread" and "overall wage gains" were seen moderate but some Fed districts "cited larger gain" in some sectors. The January-February report also noted that some businesses and manufacturers found it easier to raise prices. That Beige Book survey was a blatant departure from previous surveys which prices on the wholesale and retail level to have been largely benign. Thus we doubt it of such pressures would altogether disappear from the latest Beige Book, in which case would convey more hawkishness than the benign PPI and an expectedly tempered CPI.

At any rate, a core CPI of 0.2% or less coupled with a relatively hawkish Beige Book is expected to fail in propping the dollar, mainly because of the emerging evidence of slower growth.

EURUSD eyes $1.3050, awaiting US data

Scale down expectations of concerted Fed tightening are beginning to boost the euro, shrugging the latest negative figures from Germany's ZEW index and rising uncertainty on the French referendum on the EU Constitution late next month.

Euro nears the 38% retracement of the drop from the $1.3480 high, facing interim resistance at 1.3080. Subsequent resistance stands at $1.3120-the 50% retracement of the said move. Downside starts at $1.3030, followed by $1.2980.