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  • richard evans

US dollar down despite rate rise expectations

Good morning

US inflation was in line with expectations yesterday, the annual number coming in at 7%, the highest for nearly forty years and cementing rate rise ideas through 2022, but still Powells reluctance to speed up Feds balance sheet seems to be the catalyst for some further dollar selling. Even the idea that March could see a 25bps rate rise has not been enough to prevent other majors making gains.

GBPUSD is trading up to 1.3745, EURUSD 1.1470, USDCAD just below 1.2500 and AUDUSD now just above 0.7300. GBP a bit off its highs against EUR, now 0.8345 (GBPEUR 1.1980). GBP unaffected so far by the mounting on pressure on UK PM Johnson to resign, nor by the news Liz Truss is meeting her EU counterpart to discuss Brexit conditions.

With Fed sounding hawkish and market pricing nearly 1% of rate rises this year, it is very strange that the US dollar is weakening. I wonder whether some longer term USD bulls are beginning to worry, perhaps we are seeing some unwinding of dollar longs. This comes at a time when it would be reasonable to see USD buying on those hawkish comments and possible tightening. Can’t say I fully understand what’s at play here.

NATO Secretary General has called on Russia to de-escalate activity on the Ukraine border but I’ve not seen much news from the talks yesterday. I am still interested to know whether Russia are holding Europe to ransom over natural gas supplies, if so it is not really publicised but it seems a strange coincidence that our energy prices are high at the same time Putin is flexing his muscles in Eastern Europe.

Running a bit late today so I’m going to leave it there. Today I’m mainly looking at whether Johnson stays as PM, Djokovic stays in Australia, and whether USD remains weaker than I’d imagine?

- 09.00 ECB economic bulletin

- 09.30 BoE credit conditions

- 10.30 ECBs de Guindos speaks

- 13.30 US initial jobless claims, PPI

- 14.30 ECBs Elderson speaks

- 15.00 Feds Brainard speaks

- 02.00 China trade balance

- 07.00 UK GDP, industrial production, trade balance

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