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May 14 - 10:55 AM

TD: FX Market Ahead of April US CPI Release

By eFXdata  —  May 14 - 09:30 AM

Synopsis:

TD provides an outlook for the FX markets ahead of the upcoming April US Consumer Price Index (CPI) report. The analysis highlights concerns that recent USD selloffs, driven by technical market movements, may face challenges, indicating potential shifts in currency valuations based on divergent inflation trends and upcoming US elections.

Key Points:

  • USD Performance: The US dollar ended a two-week losing streak with modest gains, suggesting a reassessment of the fundamental economic indicators influencing the currency.
  • Inflation Divergence: US inflation indicators diverge significantly from those of the rest of the world (ROW), particularly the G10 countries, potentially impacting monetary policy decisions differently in the US compared to other nations.
  • Election Impact on Fed Policy: The proximity of the US election introduces constraints on the Federal Reserve's policy actions, possibly limiting the scope and timing of interest rate cuts, unlike other central banks which may face fewer political constraints.
  • Growth and Inflation Dynamics: While growth rates are converging globally, inflation disparities provide a rationale for continued rate divergence, supporting a stronger USD based on relative economic strength.

Conclusion:

TD anticipates that the US dollar may find support from the country's unique inflationary trajectory and economic conditions relative to other major economies. The upcoming CPI data will be crucial in testing market narratives around inflation and monetary policy, potentially influencing currency markets significantly.

Source:
TD Bank Research/Market Commentary

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