EURUSD rallys as tightening continues
As the CPI remained stubborn, traders began to consider the possibility of a larger rate hike by the ECB. In March, consumer inflation in the Eurozone decreased due to falling gas and oil prices. However, the core rate that excludes volatile items such energy and foods has remained persistently high. A tight labour market is increasing wage pressures, which in turn increases services inflation. It would be easier for policymakers to justify raising interest rates beyond the 350 basis point increase since last summer. A good GDP reading will cushion the impact of high borrowing costs, and help the euro to strengthen. 1.1250 You can also find out more about 1.0800 as support.
USDJPY gains on BoJ’s dovishness
The Japanese yen is weakening as it is expected that the Bank of Japan will maintain its dovish position. Kazuo Ueda, the governor of Japan insists on continuity in policy despite the pressure from the markets. Central bank officials are concerned that CPI could fall below 2% by the middle of the year, after the CPI spiked to a high of 4.2% for the first time in 41 years in January. BoJ is letting monetary easing go untouched in its mission to get Japan out of chronic deflation.
