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  • richard evans

Markets nervous ahead of US inflation next week

Good morning

The US dollar was under pressure yesterday afternoon with GBPUSD and EURUSD trading up to 1.2195 and 1.0790 respectively before firming again on the suggestion next weeks US CPI release could be stronger than expected. This was brought about by the release of ‘Adobe Digital Price Index, a little known set of data that apparently has a decent historical correlation with US inflation numbers. I’d never heard of it.

GBP weakened this morning after the Dec GDP release which saw m/m at -0.5%, lower than expected, while q/q and y/y at 0% and 0.4% respectively, in line with expectations. GBPUSD slipped to 1.2090 but recovered soon after and now sits around 1.2130. GBPEUR fell to 1.1270 but has also since recovered, now just a smidge below 1.1300.

GBPAUD had pushed a higher from 1.7350 to near 1.7500, but has slipped back to 1.7440 this morning. AUD was mixed after the RBA statement of monetary policy sounded more dovish than expected overnight. They see unemployment rising quicker with meagre growth forecasts. However UBS see the report differently and now see two more 25bps rises in H1 2023 which would take rates to 3.85%, which is broadly in line with CITI’s view, while some still see a peak even higher around 4.15%.

A decent move lower in USDJPY this morning, the pair trading down from 131.60 to 129.80. The move came as Nikkei reported Kazuo Ueda is to be nominated as next BoJ Governor, while the rather dovish Amamiya, deputy BoH Governor has refused the Governor role. The thinking seems to be that someone new coming in may be less tied to the idea of Abenomics and could therefore see JPY push higher.

Mexico raised its rates 50bps to 11% yesterday, a 25bps rise had been expected. The decision came after January Mexican inflation numbers which showed a y/y reading of 8.45%. MXN has strengthened against USD, with USDMXN trading down from 18.9500 to 18.7000.

Now just two weeks until the anniversary of Russia invasion of Ukraine, intelligence reports suggest Russia’s next major offensive is likely to be bigger than the original attack with some 2000 tanks and 300,000 soldiers. Many if those soldiers will be those called up by Putin last year.

Once again, the economic calendar is pretty light today and Monday looks similar as well, but Tuesday sees UK unemployment, EU GDP, and US CPI. UK inflation follows Wednesday morning, with US retail sales Wednesday afternoon. Markets therefore likely to be choppy.

Another heavy frost here this morning, but the forecast promises some warmer weather over the weekend. Lots of premier league football to enjoy this weekend, we also have the rugby six nations which sees England take on Italy. I’ve never been overly worried about this fixture, Italy historically have been the weaker side and I can’t actually remember England ever losing to Italy. However Italy put on a good show against France last week and Italy must be looking at this as a great chance to re-write the record books. Italy are still major outsiders but at 10-1 could be worth a couple of quid!

Have a great weekend….

- 12.00 UK NIESR GDP

- 13.30 CAD employment

- 14.00 BoEs Pill speals

- 14.00 ECBs Schnabel speaks

- 15.00 US Michigan sentiment survey

- 17.30 Feds Waller speaks

- 19.00 US monthly budget statement

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