Yesterday, May’s CPI report was published, showing a rise above the forecasts up to 5% in the general inflation figure. The Core CPI figure also rose to 3.8%, well above the Fed’s target.
The market’s reaction was minimal, indicating that investors still need to see the results for the next months before knowing for sure whether there is an inflationary rebound or not. The yield of Tnote initially reacted slightly higher (jumping 1.52%) but ended up falling significantly to 1.43%.
No changes in the ECB's monetary policy: repo rate remained at 0%, while the deposit rate remained at -0.5%, reiterating that rates will remain at current levels or even lower until inflation approaches the central bank’s target. This target seems far away, as inflation figures are well below those recorded in the United States.
The global amount of the debt purchase program to counter the pandemic remains at 1.85 billion euro, with an end date in March 2022, but with wide flexibility so that it could be reviewed at any time. President Lagarde said that she considers it premature and unnecessary to start withdrawing monetary stimuli. However, several ECB members were already in favor of beginning the process of reducing the purchase of assets. So, the possibility of this happening remains open, and everything will depend on the upcoming data on economic growth. This could be positively affected once the NextGeneration fund, planned for the coming weeks, is implemented. The economic projections of the ECB's economic team were more optimistic and increased growth forecasts.
The euro has not experienced any significant change after the result of the central bank meeting was known. EUR/USD continues to evolve in a narrow trading band from last week between 1.2150 and 1.2190.
Sources: investing.com, reuters.com.
The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.
The research analyst is not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest.
The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided.