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  • richard evans

US inflation at 40 year highs

Good morning

US annual CPI came in at a whopping 7.5% yesterday, or 6% excluding food and energy. US dollar initially moved higher as the market started looking at the likelihood of a 50bps move in March, with EURUSD ticking below 1.1400 and GBPUSD to 1.3525. A bout of USD selling later in the afternoon though took both to 1.1495 and 1.3635 respectively, since then we have seen another reversal, with USD pushing higher, taking EURUSD and GBPUSD down 100 pip or so, to 1.1385 and 1.3535 respectively.

US 10 year yields pushing above 2% seems to be a key reason, as did Feds Bullard comments suggesting he would look for 50bps rise in March and for rates to be 1% by July, perhaps even to see a rate rise outside scheduled meetings. Bullard is a known hawk but these comments were perhaps even more than many expected to see from him. Alswo on the hawkish side were Goldmans, who say they now look for seven 25bps rises this year, two more than their previous forecast, meaning 1.75% of rises. HSBC by comparison see 1.50% via a March 50bps rise followed by four 25bps rises.

Another key mover was USDJPY which pushed up from 115.80 to 116.35, later falling back to pre-announcement levels but with EURUSD higher it meant EURJPY traded to 133.00 for the first time since Oct 2021. High back then was around 133.50. EURJPY couldn’t hold up at those levels for long and fell back to 132.00 on Lagarde comments and general EUR selling.

SEK remained under pressure after Riksbank made it clear they regard inflation as transitory and they don’t think it is right to start withdrawing their support from the economy. This goes very much against other central banks thinking and I wonder whether we’ll see a u-turn from them in a month or two, as we have already seen from ECB. Spot EURSEK had traded down below 10.40 in the morning but pushed up to 10.57 later in the day. Typically, I was in a meeting with a client who needs to hedge upside EURSEK, during which spot was ticking higher. Timing is everything!

GBP has made some ground against EUR, with EURGBP down at 0.8410 (GBPEUR 1.1890), helped by some slightly dovish comments from Lagarde who has warned ECB acting too fast could damage any recovery. UK GDP this morning almost in line with expectations, although the Dec number showed a smaller decline than some feared, offering GBP a bit of support. There is also talk that will offer new proposals to the EU over Northern Ireland post-Brexit arrangements. GBPUSD ticking hiogher as I finish writing, now 1.3565 and GBPEUR 1.1915.

Eyes on Russia over the weekend, they still insist they have no intention of invading Ukraine but US have ordered all US citizens to leave Ukraine, a move that suggests they believe Russian action in imminent.

A lighter economic calendar today may mean more chance to see some of the winter Olympics. They just wouldn’t be the same without some failed drug testing, and the Russians haven’t disappointed as Valieva, one of their skaters are found to have taken a banned substance. Remember, Russian competitors are entered under the ‘Russian Olympic Committee’ heading as Russia themselves have been banned over a state sponsored doping programme.

Weekend spot brings rugby from the Six Nations with England taking on Italy, a pretty full premier league calendar, plus the Club World Cup where Chelsea take on Palmeiras from Brazil. Of course the main event over the weekend will be my U15s taking on a strong team from the division above in yet another cup fixture. Oh, and let us not forget the US super bowl final which takes place Sunday night. Not the greatest timing for fans in the UK given it doesn’t start until 11.30 Sunday night.

- 15.00 US Michigan sentiment survey

- 16.00 US Fed economic policy report

- 20.30 CFTC positions

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