USD

Other than a more significant drop in annual Headline inflation, there were no real surprises from the latest US Inflation data*. The minutes from the last Fed meeting drew a few more raised eyebrows later in the session. Notably, all Fed officials voted for the 25bps hike. Jay Powell had previously admitted that much discussion had occurred around a possible pause. So a few dissenters may have been expected.

Furthermore, the minutes also noted that officials predicted a ‘mild recession’ later this year. That was the bit that probably hurt stocks, risk assets, and the dollar on the day. A broad decline ensued as the odds of a soft landing (for the economy) diminished. The dollar remains depressed, with the dollar index (DXY) now trading around 0.8% lower this week.

EUR

Due to falling energy costs, German inflation continued to soften over the past month. Consumer prices rose by 7.5% annually, much lower than the 8.7% increase recorded over the year's first two months. Both French and Spanish inflation will be reported tomorrow. The single currency continues to make steady upside progress. EUR/USD is up over 1% this week and looks set to challenge the recent cycle high.  

GBP

The latest UK GDP report was released this morning, showing UK growth flatlined (0.0%) during February. Markets had been expecting a slight increase of 0.1% after January’s 0.4% gain. However, growth remains in positive territory, albeit just. Both Industrial Production (-0.2% vs. 0.2%) and Manufacturing Production (0.0% vs. 0.2%) also missed estimates in a rather downbeat set of numbers for the UK. The pound has largely ignored the data, with GBP/USD gaining over 0.7% through the week and is again probing levels not seen since the middle of last year. 

JPY

It has been a mixed bag for the Yen of late. EUR/JPY is currently 1.75% higher this week, buoyed by a mix of positive sentiment, a broadly stronger Euro, and BoJ governor Ueda’s commitment to YCC. USD/JPY is a slightly different animal and looks trapped around the 133.00 region, lacking clear directional bias, with both the dollar and Yen faltering in this environment. 

CAD

The Bank of Canada (BoC) stuck to its guns and maintained its policy rate of 4.25% yesterday. The BoC had previously stated that they wanted to assess the impact on the Canadian economy of their cumulative rate hikes. The BoC likely had one eye on softening inflation and worries over the sensitive housing market. The BoC also published their quarterly Monetary Policy report yesterday, in which they projected Canadian inflation to drop to around 3% by the middle of this year and then reach their target goal by the end of 2024. The BoC increased its 2023 growth forecast from 1% to 1.4%. USD/CAD is now nearly 1% lower on the week, with the move further fuelled by rising oil prices. 

MXN

USD/MXN continues to gyrate near the recent cycle low but remains just above, which will frustrate the Peso bulls among us. There was a sharp dip in the immediate aftermath of the US CPI data, similar to declines for the dollar elsewhere. Still, the move has so far lacked momentum.  

BRL

USD/BRL has edged ever-lower through the week as markets take a positive outlook toward the new Brazilian government fiscal plan. In particular, there remains less risk of an escalation in national spending, which has the potential to support the Peso further. USD/BRL is now around 2% lower this week and is trading at levels not seen since June last year.