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  • richard evans

USD loses ground amid cautious sounds from Fed officials

Good morning

The USD spent much of yesterday on the back foot, with GBPUSD and EURUSD trading up to 1.2255 and 1.0585 overnight, now 1.2220 and 1.0555 respectively. USDJPY is also down from its highs yesterday, moving from the 149.20 area to hit a low overnight around 148.20, before recovering almost all of those losses, now 149.00. GBPEUR is 1.1570, BoEs Mann giving a bit more support to GBP saying the longer inflation sits above target, the more the central bank needs to do. Although Mann is a known hawk, there had been a question over whether her calls for a rate rise would be tempered. Seems to be a clear ‘no’ for now.

The relative USD weakness comes as yields slip back. Recent comments from Fed officials have been a little more cautious, Jefferson saying Fed has to proceed carefully as it balances the risk of tightening further or deeming current levels restrictive enough. Feds Logan gave a mixed message, saying there may not be a need to raise rates again and in almost the same sentence saying the Fed may need to do more. Sounds like she’s sitting on the fence but this is really indicative of the tipping point we are now at. There could be more rate rises from the Fed if the US economy continues to run hot, but there is an equal risk that the economy slows and the Fed finds they have done enough. That’s the reality of the situation, no one knows for sure.

It goes without saying that headlines are still dominated by the Israel attacks. A dreadful loss of life on both sides and that death toll can only increase as Israeli airstrikes continue to target Gaza. Hamas are reportedly saying they are open to discussions over a truce with Israel now that their attacks appear to be over, I’m not sure Israel will look kindly to that idea although there are still many hostages being held by Hamas and Israel will be eager to get as many back as they can.

Other countries are now voicing their support, Saudi Arabia have shown support for Palestine while the West have shown support for Israel through a joint statement from US, UK, Italy, Germany and France. There remains much danger of contagion in the region and with it the threat of this becoming a wider war with more nations brought into the fray. After the Russia invasion of Ukraine, the world seems to be dividing into two clear factions, which is worrying. Turkey, who tried to act as mediators in the Ukraine/Russia conflict, have offered the same for Israel/Palestine.

While I’m talking of Turkey, I note that USDTRY is now up to 27.72 with EURTRY at 29.30. GBPTRY now 33.92 for those who may be looking for a cheap half-term getaway.

Nothing in the way of economic data releases on the calendar today so we will have to listen more closely to the central bank officials that are speaking today. The calendar does get busier through the week, US inflation number son Thursday almost certainly the highlight. In the meantime, England are currently playing cricket against Bangladesh, as I type England look in control at 199-1 with Malan hitting a century.

- 13.00 ECBs Lagarde speaks

- 14.30 Feds Bostic speaks

- 20.00 Feds Kashkari speaks

- 18.30 Feds Waller speaks

- 23.00 Feds Daly speaks

- 01.30 RBAs Kent speaks

- 07.00 German HICP

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