USD

Risk assets weakened across the board through yesterday, with yields in key US Treasuries rallying and US equities posting their biggest drop in over two months, as market nervousness around higher US rates dominated sentiment. A strong-looking US PMI, with sizeable gains amongst the Services sector further underscored the ongoing strength in the US economy, which only added to those market jitters. This afternoon’s release of the last FOMC minutes might actually boost market sentiment, given that the meeting came way back before most of the recent support-strong US data was released, and the Fed were thinking about a lower terminal rate. The dollar remains firm, with the dollar index (DXY) rising by another 0.25% during European trading today.

 

EUR

Following on from a slowdown towards the end of last year, the latest German inflation report showed little signs of softening, with harmonized inflation remaining at 9.2% (YoY/Jan), and up around 0.5% over the past month. There was some better news from the team at the IFO institute. However, with expectations rising beyond, well expectations really at 88.5 from 86.4. EUR/USD remains steady ahead of the FOMC minutes and has drifted around 0.16% lower so far today.

 

GBP

The pound has maintained most of the gains achieved after yesterday’s double-dose of the good news*, although GBP/USD has drifted around 0.2% lower this morning alongside other key dollar pairs. The recent slew of UK public-sector strikes may also came to a welcome halt, a move fuelled by the sudden boost to the government’s coffers, with news that Rishi Sunak could be about to offer a blanket 5% pay increase to workers, which may hopefully prevent the need for further industrial action. 

*Please see our DMP from yesterday (21st Feb) for more detail

 

JPY

Rising US Treasury yields continue to dominate the tug of war in USD/JPY, with the pair remaining close to the key 135.00 region for another day, although we have since drifted around 0.2% lower, as position squaring dominates proceedings ahead of this afternoon’s FOMC minutes. Beyond today, the latest testimony from new BoJ chief Ueda this Friday will be monitored for his views on YCC, and is likely to impact sentiment in the yen crosses. 

 

CAD

Canadian annual inflation softened more than had been predicted during January, with Core inflation dropping to 5%, having been expected to have increased from 5.4 – 5.5%. Headline inflation also decreased from 6.3 to 5.9%, also on an annual basis. In other news, the latest Retail Sales data accelerated during the key December trading month with the 0.5% increase beating estimates of a 0.2% gain. The news on inflation will be a comfort to the recently-paused BoC, although strong Retail Sales growth points to a more optimistic consumer. In light of the weaker inflation report, USD/CAD rallied over 0.6% through yesterday.

 

MXN

USD/MXN found some worthy support after recently achieving a 5-year low, and the pair rallied over 0.3% through yesterday.

BRL

USD/BRL returned to action after the weekend and Monday holiday yesterday with the pair slipping around 1.5%, as the broad two-week range persists.