EU CPI rises modestly and risk appetite remains weak

London (May 19)   EU CPI year on year (YoY) for April comes in at 1.6% vs expectations of 1.6% higher than the previous reading of 1.3%. In a slight surprise the core reading for the same month (MoM) fell to 0.5% (exp 0.6% previous 1.0%).

Earlier on in the session, the U.K. also had its latest CPI reading for April and the YoY number reached 1.5% beating expectations of 1.4% and the previous reading of 0.7%. Interestingly, both the EUR and GBP have risen against the USD. This is important as most commodities and raw materials are priced in the U.S. dollar. 

The risk markets have sold off this morning with the DAX down just over 1% and the FTSE 100 down -0.75%. The main fundamental narrative from analysts is that the inflation fears are causing this sell-off. Kazushige Kaida, head of forex sales at State Street Bank's Tokyo branch said "Inflation remains the biggest theme, whether it is real and whether the Fed may need to change its policy because of that,".

Later in the session, we will get the latest meeting minutes from the FOMC and maybe this could give us some more clues on the way the Federal Reserve will position itself as inflation continues to rise. They have commented that they are waiting for the nation to reach "full employment" until they are willing to raise rates. 

Overall, the dollar has bounced back slightly in recent trade and EUR/USD has fallen -0.11%. Gold is trading -0.45% too and this balance between risk and dollar strength continues. 

Reuters