USD

US CPI drops by 0.1% to +6.4% YoY, although a larger drop to +6.2% was expected in the bank survey.  Month-over-month CPI actually increased by 0.5% vs the previous drop of 0.1%, primarily due to stubbornly high housing and services costs. This reading also contained a drop in used car prices, delayed data that has actually reversed recently and won't be accounted for until the next release. The CPI report has yielded some of the most volatile moves amongst risk assets over the past six months, so we should expect heightened volatility one way or another. As for the dollar, we would foresee a ‘usual’ market reaction, so expect a weaker greenback on softening inflation and vice-versa. Risk assets have also edged higher ahead of the report, which is likely a reflection of expected softness, plus a big dollop of position squaring to boot.

 

EUR

The latest Euro area GDP and employment data was released earlier today in the European session, with (GDP) growth at 0.1% QoQ/Q4 and 1.9% on a yearly basis, matching the preliminary readings, which were released a couple of weeks ago. There was also a pleasant upside revision to employment, with gains increasing by 0.4% over the same period, up from 0.3%. Having declined from over 1.1000 to under 1.0700 in fairly rapid succession, EUR/USD finally found some worthy support through yesterday and has continued to make steady gains over 1.0750 through the European morning session.

 

GBP

The recent rally for the pound continued over the past day, aided by the broader rally in risk assets, and boosted further by the latest UK employment data. Overall (ILO) unemployment remains at 3.7%, and there was a healthy 12.9k reduction in headline claims, beating estimates of a 3.2k reduction. Wage inflation may still be running behind headline inflation, but the 6.7% quarterly gain also beat estimates of 6.5%. With stronger payrolls following on from the boost in GDP (albeit just) coupled with stronger factory production last week, UK data is defying the gloom-merchants of late. GBP/USD pushed over 1.2200, but the short-term profile from here will be defined by US inflation.

 

JPY

Recent volatility amongst the major yen crosses continued unabated through yesterday. After much speculation, the Japanese government finally announced Kazuo Ueda as their pick to be the next BoJ governor earlier today (Tuesday), and he will have the tough task of steering Japan away from YCC* as inflation in the country accelerates. USD/JPY has pushed higher of late, driven by both the dollar side (see USD) and decreasing expectations that Ueda will be in any hurry to abandon YCC, despite yields on the 10-year JGB continually probing the 0.5% BoJ ceiling. 

*Yield curve control

 

CAD

USD/CAD continues to trend lower after last week’s blow-out Canadian employment report, which have led to questions about whether the BoC will be able to pause in rates (as advertised) or not.  We would expect the Loonie to fall in-line with the other major dollar crosses today and take its directional basis from the greenback. Any move below 1.3300 would get interesting for the dollar bears, given that this has proved to be the low for the pair on many an occasion of late. 

 

MXN

At 18.56, USD/MXN is within touching distance of the recent low at 18.51, which, if broken, would likely lead to another leg higher for the Peso. The recent Peso strength has been partly fuelled by the stronger-than-expected Banxico rate hike last week, which came in response to higher Mexican inflation.