The surge in pipeline pressures is delaying economic recovery and holding back central bankers for devoting their priority to dovish policies, even the Feds themselves.
The Euro Zone was the first to withhold all the downside pressures from the aftermath of the credit crisis, and the ECB never discarded their hawkish stance, yet as inflation kept on escalating out of hand despite signs of a slowing economy and the record euro, the effect of massive pumped liquidity and record food and energy prices the risks to price stability remained tilted to the upside.
Today German figures confirmed ongoing fears as their EU-harmonized consumer prices were revised higher opposed to steady expectations rising 0.7 percent in May and 3.1% in annual terms, while Germany is still posting the most support for EU growth as they surpassed expectations of growth in the first three months yet price stability is the concern for the ECB to ensure ongoing growth especially as labor unions are arguing for further wage increases while some were already delivered and for that the ECB's entrapment will be with materializing second round effects.
As for the world's largest economy consumer prices in the US are expected to have gained 0.5% in May after 0.2% and to remain steady at 3.9% in annual terms, as for less volatile measure the core monthly rise is expected by 0.2% after 0.1% the previous month while the yearly to remain unchanged from the previous at 2.3 percent.
The Feds have signaled the end of their easing journey to support the economy and that rate are accommodative now to stimulate growth. They fear rising inflation and inflation expectations in regards to prolonging the recovery phase. With still low confidence in the economy as preliminary Michigan sentiment for June is expected to weaken further to 59.0 after 59.8, and as the Feds now managed to gather the pieces of the scattered economy the last thing they need is for inflation to scatter them once more as they attempt to glue the economy back to stability.
With increasing spending, as consumers are actually utilizing those tax rebate checks to support the economy, inflation is growing more of a concern, while record commodity prices is the backbone support to the US favoring A STRONG DOLLAR POLICY!
Other than market jitters and dollar power in the markets on the back of a soon to be seen rate hike by the Feds, which players marked as soon as August, jittery markets now are concentrating on the weekend G8 meeting in Japan. As currencies is not their focal concern yet the nations might detour to it as their top priority on the agenda is record oil prices, and since that is a very correlative matter to the dollar, then the exchange market file is to be tabled.
Paulson stated that intervention is not a possibility to rule out in the market, and that above all expectations is what helped the dollar race to its biggest weekly gain against the euro in nearly two years and the most against the yen since November. Since both currencies were the most active against the dollar in the past period.
The dollar was last supported by an intervention was back in 1995 when it sank to its post World War II lows at 79.9 against the yen. Fears of that to reoccur in the market is keeping participants at the edge of their seats as they are cautious of any abrupt movement and that the US might start buying back its own currency.
Crude that set a new all time high last week just glimpse away from $140 a barrels fell to as low as $130.80 to yet rebound once more and now trade around $136 a barrel. With expectations from Morgan Stanly and Goldman Sacks that oil is to hit $150 a barrel this summer the G8 woes are growing further and inflation is to post greater pressure on global economic growth.
The CPI data is to set the grounds today for the dollar's ongoing journey, while the communiquÃ© of the meeting on the weekend will be watched to confirm the trend. So keep your mind free and analyze it accurately for you do not want to miss the market rush...