Dollar lower after US inflation data

The dollar lost ground to the euro and the yen on Friday following the release of inflation data in the US. It weakened to over $1.09 against the single currency, having rallied to under $1.0850 at one stage earlier in the week. The euro also gained some ground against sterling to close out the week trading at 84.75p

The annual rate of core CPI inflation in the US fell for a third consecutive month in April to stand at 1.9%, the first time it has been below 2% in 18 months. The headline inflation rate also eased back last month, to 2.2% from 2.4% in March

US bond yields also fell following the inflation data with 10-year yields declining by 6bps to 2.33%, some 10bps off their intra-week high.  Equivalent yields in Germany and the UK followed suit, falling by 4-6bps

A German media story on Friday said the ECB will soon prepare financial markets for an exit from its ‘ultra-loose’ monetary policy, and in the autumn will lay out a plan for reducing the monthly pace of asset purchases (QE) during 2018

German Chancellor Angela Merkel’s CDU party chalks up another victory in state elections (this time in North Rhine-Westphalia) ahead of national elections in September

Brent crude oil prices have jumped to over $51 p/b after Saudi Arabia and Russia say they favour extending oil production cuts to March 2018 (the current agreement allows for a six month extension to the end of this year) and will put a proposal to a meeting of OPEC and its partners scheduled for May 24-25

Data due this week include CPI (Tuesday) and retail sales (Thursday) in the UK, with the latest labour market report scheduled there as well (Wednesday)