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  • richard evans

Are we seeing the calm after the storm?

Good morning

Quite a day in the currency markets yesterday, we saw a broadly weaker USD ahead of the US inflation number, the release triggered strong USD buying, before it turned once again and USD weakened into the close. The US inflation came out stronger than expected in all areas, the headline at 8.2%, core m/m at 0.6%, core y/y at 6.6%. A 75bps rise next month is well and truly priced in and it would seem that the Fed do indeed have a lot more to do, as they have been telling us for some time now. JPMorgan says US rates could go above 4.5% if inflation stays high.

Quite how the US dollar weakened, and US stocks rose, on such on a strong inflation print is puzzling for greater minds than just mine.

GBPUSD had a wild ride, up to 1.1285 before the release, all the way back down to mid-1.11s, before pushing on to 1.1375 soon after. Now trades back to those pre-release levels 1.1290. EURUSD saw similar swings, up to 0.9750, down to 0.9635, up to 0.9800, now 0.9765. Gold had an almighty swing, up to $1686, down to $1642, now just around $1670. USDJPY of course is being closely watched for any sign of further intervention, the pair traded up to 147.70 after the US CPI and despite dropping back to mid-146s soon after, it has ticked back up to 147.55. These are almost right on the levels that capped the upside all the way back in 1998. Without intervention a run up to 150.00 looks likely, some talk of a large option expiry today around 147.25 may delay further gains for a while.

Closer to home, although GBP is currently 900 points off those end-Sept lows, it remains vulnerable. BoE support in gilts is set to end today, no one seems to have any idea whether this will see increased volatility or remain calm. IMF Head Georgieva said BoE actions were appropriate and that fiscal policy should not undermine monetary policy and urged better communication between Kwarteng and Bailey. Market looks for a u-turn from Kwarteng, spurred by reports he had come back to the UK from IMF meeting early to rejig parts of his mini-budget, but there is no certainty that this will happen, and even if it did happen, who knows when.

There is the inevitable talk that Tories are already looking to replace Truss with Sunak, whether this is really viable I’m not sure, but it isn’t a surprise that anyone who voted against Truss will start to voice their unhappiness with how her leadership has started.

Things looking mixed in China as they battle with their zero-Covid policy. Reports that Chinese local governments are buying up thousands of unsold properties in an attempt to support the beleaguered property sector. However Asian stocks traded higher into the weekend following positive moves in US and Europe.

Very easy to look forward to the weekend already but I fear we could be in for a long day, just hoping to end the week relatively unscathed. I’m off to Nottingham tomorrow for yet another University visit with my daughter. Everyone says how expensive University is these days, well she hasn’t even started yet and I’ve dished out a fair chunk already on petrol and hotels as we’ve scoured the country for somewhere suitable to study. Just a couple more to go including one in Scotland, so must remember to add the cost of flights to my ever-increasing bill.

My team are in cup action this Sunday, I’ll report back Monday as to how we have fared. Hpoefully the weather will stay mild, I know it’s a winter sport but I will always still prefer to stand on the sideline in warm sunshine rather than wind and rain.

- 12.00 BoE quarterly bulletin

- 13.30 Us retail sales

- 15.00 US Michigan sentiment survey

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