CPI, dollar falls after weak data, multiple Fed officials to speak

On Wednesday, the US dollar index fell below the 101 mark. The economic data on this trading day is relatively small. US Secretary of State Rubio attended an informal meeting of NATO foreign ministers from May 14 to 16 to discuss NATO's security priorities, including increasing defense investment and ending the Russian-Ukrainian war. In addition, many Federal Reserve officials will make speeches, and investors need to pay attention.

Analysis of major currency trends

Dollar: As of press time, the dollar index hovers around 100.95, traders remain cautious amid a blur of trade commitments with China and the UK, with new uncertainty emerging after President Trump pushed for ambitious investment and tax plans without detailing how they would affect the economy. Despite the headlines of tariff downgrades, Fitch's effective tariff rate on Chinese goods remains above 40%, heightening doubts about the durability of the recent agreement. Technically, the US dollar index showed a bearish signal, with the price trend near the lower end of the intraday range between 101.19 and 101.76. Both the Relative Strength Index (RSI) and the Ultimate Oscillator are hovering in the 1950s, indicating that the momentum is neutral. Moving average convergence divergence (MACD) shows a modest buy signal, but this is offset by the Stochastic RSI Fast, which expanded in the 1990s—indicating overbought situations. In addition, the 10-cycle momentum indicator close to 2.00 strengthens short-term selling pressure.

Euro: Up to press time, EUR/USD hovered around 1.1188, and the EUR/USD rose on Tuesday, regaining most of the losses at the beginning of the week. The pair is now testing the 1.1200 mark, thanks to the weakening of the U.S. dollar in the overall market, rather than any specific bullish momentum driving the euro market flow. The German Consumer Price Coordinated Index (HICP) will be released during the European market hours on Wednesday, but non-preliminary data is unlikely to attract much attention. Pan-European's first-quarter GDP data will also be released on Thursday, but the market median forecast is expected to be similar to the previous quarter. Technically, the exchange rate continues to run below the 200-period moving average (1.1200), and the Bollinger band opens to expand (upper track 1.1339, lower track 1.1044), indicating an increase in volatility and an intensified downward risk. Although the MACD bar chart narrowed slightly, DIFF and DEA are still below the zero axis, and the short momentum has not been fully released. RSI (14) was 28.43, close to the oversold area, but there were no signs of bottom divergence, suggesting that the current downward trend may continue. The upper resistance needs to focus on the high of 1.1425 on April 28. If it breaks through this level, it may alleviate short-term selling pressure; the lower support points to the low of 1.0733 on March 27. If it falls, it may open up a deeper correction space.

GBP: As of press time, GBP/USD hovered around 1.3305, and GBP/USD won a buy on Tuesday, rebounding above the 1.3300 mark, reversing losses earlier this week, with global markets fluctuating around the overall liquidity of the US dollar. The UK labor data had little impact on the market, and the market's response to U.S. Consumer Price Index (CPI) inflation was just as bland. Investors continue to pay attention to the general sentiment brought about by ongoing trade deal negotiations between the Trump administration and other parties, yet all trade tariff concessions made by the Trump team are strictly temporary. The pound market will await the latest UK first-quarter GDP growth data released on Thursday. Technically, the bullish reversal of the GBP/USD puts the pair in a rough consolidation mode in the short term. The price action has been in a volatile phase since it has fallen from its recent high near 1.3450, but bearish momentum has been working hard to pull buying back to the 50-day index moving average (EMA) near 1.3100.

Summary of news from the foreign exchange market

1. Affected by the US tariff policies and other factors, the German economy will continue to decline

The latest report released by the German Economic Research Institute on the 13th stated that the German economy is still in recession, and the report predicts that Germany's economic output will fall by 0.2% this year. Previously, the German economy was in 2023 and2024 has shrunk for two consecutive years. Germany is suffering from severe impacts from the U.S. government tariff policies and global uncertainty, and citizens remain cautious when making bulk procurements.

2. The accelerated decline in wage growth in the UK should support the Bank of England further rate cuts

Economists at Bank of America said in a report that a faster slowdown in wage growth in the UK should support the Bank of England further rate cuts. The average wage increase in the UK, regardless of bonus, fell from 5.9% in February to 5.6% in March. Economists say wage growth in the UK may continue to decline, creating conditions for further rate cuts. The market has completely digested the Bank of England's expectations of another rate cut, and by the end of 2025, the Bank of England is very likely to cut interest rates again. Bank of America expects the Bank of England to cut interest rates three times in August, September and November, bringing policy rates to a low of 3.5%.

3. Analysts: April CPI data did not change the expectation that the Federal Reserve will only cut interest rates once this year

Analysts Anna Wang and Stewart Paul said that the April CPI report showed that inflation in the consumer sector, which was most affected by Trump's tariffs, was showing an accelerated trend. However, deflationary pressures in tourism-related categories and other entertainment services offset some of the gains in commodity prices. The report shows that when evaluating the impact of Trump's tariff policy on inflation, its indirect impact on the service industry must be considered simultaneously. Given the relatively high importance of the service industry in CPI, as the April report shows, deflation in the service industry may offset the rise in commodity prices. Still, the Fed may not get much signal from its April CPI report, as their forecasts suggest inflation will rise in the coming months. We maintain our benchmark expectations that the Fed will cut interest rates only once this year, which is 25 basis points at its December meeting.

4. The annual inflation rate in the United States cooled down in April Goldman Sachs: Early inventory delays the inflation crisis

The annual inflation rate in the United States cooled down in April, and this month, companies are working hard to adapt to the impact of Trump's unpredictable trade policy. The monthly inflation rate was 0.2%, higher than -0.1% in March, roughly in line with economists' expectations. In April, Trump tariffs left the market turbulent throughout April. Retailers have been working to keep prices stable for their customers, but they warn that they will eventually have to raise prices. Goldman Sachs economists say companies' early inventory before tariffs take effect may moderately delay passing higher prices to consumers.

5. In April when Trump announced tariffs, U.S. inflation fell to 2.3%. In April this year, the month when Trump imposed tariffs on the world, U.S. inflation fell to 2.3%, and analysts expected to remain at the 2.4% level in March. Even though Trump has cut many of the tariffs he announced on April 2, economists warn that much of the impact of import tariffs has not yet emerged, and Fed officials expect price pressureWill rise further. Trump pressured Powell to cut interest rates and added last week that dealing with the Fed chairman was like “playing the piano against a bull.” The Fed's favored inflation target is not CPI, but PCE. In March, PCE fell to 2.3%, but was still above the Fed's 2% target.

Institutional View

1. Goldman Sachs: It is expected that the US dollar will continue to decline against Asian currencies

Goldman Sachs said that after the recent progress in trade negotiations, the possible direction of the US dollar/Asian currency pair is still downward. It said that despite the recent progress in trade negotiations between China and the United States, the main themes of the market have not changed. These themes are: the gradual diversification of investment from U.S. assets should continue; Asian exporters should continue to convert the U.S. dollar into local currencies; if Asia negotiates trade with the U.S., its currency may be more difficult.

2. Institutions: The weakness of the dollar shows that market distrust of the dollar persists

HSBC foreign exchange analysts say interest rate differences and other traditional factors suggest that the dollar should strengthen. The recent weakness of the dollar shows that other factors are dominating the dollar's movement and market distrust of the dollar continues. The U.S. economic activity, political and structural factors mean that the U.S. dollar should be in a weak state, although the U.S. dollar will not continue to decline for many years. We do not agree with the structural decline of the US dollar, but we understand the risks and the factors that may cause this decline. It takes time for people to recover in the trust of the dollar.

   

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