A weaker greenback

Encouraging news as the possibility of real progress from the ongoing peace talks between Russia and Ukraine, gave markets and risk appetite a hearty boost yesterday. In a familiar and predictable pattern, crude prices went in the opposite direction. These moves came in conjunction with declines in likes of Gold and the greenback, as news that the peace talks might have reached the stage where each countries respective presidents could now potentially meet face to face. Crude dropped back below $100bp at one point. Further depressing the price here is the worry that the latest COVID-related lockdowns in China will increase the prospect of falling demand.

The yen rallies on a risk-on day?

The dollar index quickly gathered downside momentum as a consequence, registering a sharp fall from over 99.00 to around 98.00. The biggest component of the dollar index, EUR/USD, finally broke free from the clutches of the 1.1000 region, and rallied back to 1.1140, which further underscores what factors are really driving the single currency just now. USD/JPY also moved 370pips lower from yesterday’s high of over 125.00, to 121.30. These big daily ranges for USD/JPY perhaps highlight the somewhat crowded nature of the trade, and are not for the faint-hearted. Moreover, the moves seem to have stirred Japanese officialdom into action, as episodes of verbal intervention have accelerated in a bid to talk the dollar back down again. Whilst they sometimes have a short-term impact, verbal intervention rarely succeeds in the long-run. Elsewhere, USD/CAD continues to trade within a whisker of the yearly low at 1.2450.

U.S job growth set to continue

The dollar will now turn its attention to the more familiar surroundings of the U.S labor market today. As always, the latest ADP (private payrolls) will precede the key nonfarm release by two days. That bit never changes. Historically, the ADP has also been a good leading indicator to the outcome of the nonfarm’s, so markets have understandably given it much attention. However, lately that helpful indicator has often been about as predictable as the British weather. Parking that pearl of wisdom to one side for a moment, last month’s ADP release was at 475k. This month it is expected to be roughly around the same level, with the latest estimates homing in on the 450k region. If accurate, this would again reflect solid jobs growth and give the Fed further assurance that maximum employment is still on track.

The latest U.S GDP (Q4,2021) is also released just after. Markets expect a 7% gain, and the accuracy rate here is far more compelling.

Sterling slips out of the headlines

Sterling started the day on the backfoot, with GBP/USD slipping to a two-week low below 1.3100, before rebounding alongside other currencies against the dollar. However, given that the real winner on the day was the single currency, GBP/EUR slipped back toward the 1.1800 region. The lack of meaningful UK data has ensured that the pound has taken its short-term directive impetus from elsewhere.

Inflation, again

German Inflation is sure to garner much market attention today, and will likely dictate the short-term path for the single currency. The latest estimates predict that the yearly print will rise from 5.5% to around 6.7%, with a monthly increase of around 1.8% on the cards. Lofty numbers will only serve to highlight the increasing need for the ECB to begin the process of removing stimulus, sooner rather than later. This is especially true when you consider that Spain’s inflation rate is now expected to surge above 8%, when released today. Furthermore, the latest declines in consumer confidence in the region, give further evidence that surging inflation is hitting the consumer hard – should we need it.