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  • richard evans

Potential for higher peak in US rates keeps USD supported

Good morning

I arrive back at my desk to see GBP back to 1.2000 against US dollar, losing the post-PMI gains we saw earlier in the week. EUR too has lost ground against USD, with EURUSD now 1.0580, leaving GBPEUR 1.1345, still holding recent gains proving that it is the US dollar driving things for the time being. Mildly hawkish noises from FOMC minutes and suggestions that US may need to see a higher peak in rates to battle inflation has given support to USD.

New BoJ Governor Ueda spoke yesterday in front of Japan’s Parliament, yen weakened a little as he confirmed he supports the current easing policy and that any return to normalisation would be gradual. USDJPY has worked its way up to almost 135.00 while GBPJPY currently sits just above 162.00. Mind you, a reuters poll shows nearly half of Japanese firms want to see an end to negative rates and many would like to see the 2% inflation target revised.

Today sadly marks the one year anniversary of the Russian invasion of Ukraine. China has reportedly come up with a proposal for peace but I’m not sure that involves a Russian withdrawal of forces from Ukraine and therefore unlikely to gain traction. I’m presuming their idea of peace would leave Russia holding swathes of Eastern Ukraine.

While China may offer peace proposals, there is also talk they are looking at providing Russia with attack drones, which doesn’t really help the idea of peace. While we all hope for peace, listening to Putin the other day I didn’t hear much from him to suggest he’s looking for a quick and peaceful end to the invasion.

Core PCE numbers from the US this afternoon could be the highlight of the day, particularly given the Fed are becoming more data-dependent. We also have several Fed officials speaking, looking for any comment regarding a possible higher peak in rates. BoEs Tenreyro is also speaking, usually very dovish so don’t be surprised if she talks about a pause in rate rises or even the need for a cut in rates.

So, to the weekend. Plenty of sports to look forward to including England/Wales in the rugby six nations, England/NZ cricket test match, where so far England turned something of a disaster at 21-3 into a much more pleasant looking 315-3. Usual line-up of football matches including what could be an interesting tussle between Spurs and Chelsea. Talking of interesting tussles, boxing sees a fight between social media star Jake Paul and Tommy Fury, half-brother of Tyson Fury. I’m sure it will upset the boxing aficionados, but this is an intriguing contest with Jake Paul the bookies favourite.

Have a great day and a splendid weekend. I’m off travelling again early next week so your inboxes are now safe until Wednesday. Crikey, that’ll be March. Where has the year gone!

- 13.30 US core PCE, personal income, spending

- 15.00 US Michigan sentiment survey, Michigan sentiment survey

- 15.15 Feds Mester, Jefferson speak

- 16.30 Feds Bullard speaks

- 16.30 BoEs Tenreyro speaks

- 18.30 Feds Waller speaks

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