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  • richard evans

US dollar rallies as markets look for Fed to raise rates 75bps tomorrow

Good morning

The US dollar was stronger yet again yesterday as the market continues to look at the potential for more aggressive rate rises by FOMC, starting with a possible 75bps rise tomorrow. Goldmans, JPMorgan, Deutsche Bank, Barclays all see a 75bps rise coming. If this were to happen it would be the first time since Nov 1994 they have raised rates by that amount in one go. A total 2% of increases is now seen from the next three FOMC meetings, even a rise of 1% tomorrow cannot be ruled out. US stocks shift lower, the S&P 500 was down nearly 4% yesterday and although futures pricing points to a slight recovery, this looks like real bear market territory.

GBP was one of the worst performers, hampered not only by the strong dollar but also by the unilateral dumping of part of the NI protocol which has seen EU talk of legal action and possibly trade tariffs. This morning saw disappointing UK unemployment numbers, showing an unexpected rise in the unemployment rate, on the heels of weaker than expected data yesterday morning. The recent weak data is a real headache for BoE who need to raise rates as inflation rises, but against a weaker economic background. Doesn’t sound good. GBPUSD traded to 1.2010 yesterday but managed to creep back up to near 1.2200 before the data this morning, which took the pair back to 1.2160.

EUR was also lower against the USD, trading below 1.0400 overnight before staging a slight recovery to mid-1.04s, unmoved by German inflation numbers this morning that came out in line with expectations. EURGBP up at 0.8585 (GBPEUR 1.1650), an area that has been tested and held several time since last October, give or take the odd blip. Its quite a significant level.

UDJPY traded down to 133.60 yesterday afternoon before heading back to 134.80 early this morning, Japan officials seem to be quiet this morning. Bitcoin traded below $21,000, with $20,000 looking like a key psychological level, a break of which open s up a move back below $10,000. Quite some way from the $100 level Goldmans had been talking about at the start of the year. Can’t be right all the time. Spare a thought for the people of El Salvador who announced the digital currency as legal tender back in September, the value of Bitcoin has pretty much halved since then.

Gold also trades lower, spiking down to $1810 overnight in a move that looked more than a little like stop-hunting. Now back up to $1825, seems to be torn between a strong dollar and demand for a hedge against inflation.

I have been reading with some interest that a Google engineer has been placed on paid leave after sharing a conversation he had with an AI system, Lamda, that, he claims, shows the AI has its own feelings. Google have dismissed the claims but look set to also dismiss the engineer. AI is certainly something that we’ll read more about in our lifetime. Forget the ‘chatbot’ idea that just picks up on key words, these really seem to be able to hold a proper conversation. I still struggle with the concept, I still see anything computer based as something that has to be programmed, but I have no doubt there are developments that will one day blow our minds. Anyone remember WOPR or Johnny 5?

- 10.00 German ZEW

- 13.30 US PPI

- 13.30 CAD manufacturing sales

- 18.00 ECBs Schnabel speaks

- 23.45 NZ current account

- 00.50 Japan machine orders

- 01.30 AUS Westpac consumer confidence

- 03.00 China retail sales, industrial production

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