USD up on higher US PPI inflation numbers

Will ECB officials shed any light on rate expectations?

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place at the weekend. 

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

This will be until Sunday 31st when we change our clocks in the UK.

Yesterday the markets were in something of a consolidation mode, certainly GBPUSD was stuck in a reasonably tight range through the day, touching a high around 1.2810 a couple of times and as I type we are testing up there once again, while to the downside it was rarely below 1.2780.  EURUSD was a little more active, starting around 1.0920 and working its way up to 1.0960 by the end of the London session, falling back overnight to current levels around 1.0935. 

Potential interest rate changes still the main talking point, I note that Fitch have pushed back their forecasts for Fed and ECB from June to July and April to June respectively.  The risk must be that these get pushed back further still.

Today we will have the US PPI, another potentially market moving inflation number, while we also hear from several ECB officials where perhaps we’ll get an idea of their thinking for rate moves in April or June.  A lot of attention however is turning to the BoJ meeting next week, the general feeling is that they will keep rates in negative territory until the April meeting but with just under one third of commentators looking for a rate rise in March it will certainly be one of the more closely watched meetings.

Cheltenham again today, anyone following my ‘choose the name’ method should have been pretty happy if they had each way bets, both Monty’s Star and Romeo Coolio each finishing second.  Today I’ve spotted Colonel Harry in the 1.30, my eldest son’s name (Harry, not Colonel), and Cleatus Poolaw in the 2.10 (got to be of a certain age to remember dukes of hazard).   

Finally, apologies to their respective fans but no one would have thought a midweek match between Bournemouth and Luton would be particularly memorable.  As it was, Luton took a 3-0 lead in the first half, only for Bournemouth to turn things around in the second half to win 4-3.  It would not have been a great journey home for those travelling Luton fans.

That’s all for now, a relatively short piece today reflective of the lack of anything decent to get my teeth into.  Have a great day, got a little bit of sunshine here at the moment, we’ll see how long that can last.  Mornings evenings getting noticeably lighter which is never a bad thing.

-  09.30 ECBs Elderson speaks

-  11.00 ECBs Schnabel speaks

-  12.00 ECBs Knot speaks

-  12.30 US retail sales, PPI, initial jobless claims

-  18.00 ECBs de Guindos speaks

-  18.30 ECBs Stournas speaks

-  21.30 NZ business PMI

Higher US inflation brings pause to USD sell-off, will Fed delay rate cuts?

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place at the weekend. 

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

This will be until Sunday 31st when we change our clocks in the UK.

US inflation yesterday did come out a touch stronger than many expected, certainly not in line with the Adobe digital price index that I mentioned had previously been a reasonable indicator.  As you would expect, the US Dollar pushed higher with GBPUSD trading down to 1.2750 and EURUSD to 1.0900, although it wasn’t long before the dollar gave up some of those gains, leaving GBPUSD at 1.2780 and EURUSD 1.0920.

USDJPY had a bit of a move as well, trading from 147.50 up to 148.10, down to 147.10 before settling at 147.75.  With BoJ putting a lot of focus on wage growth when they talk of a move away from negative rates, it is quite interesting to see that Toyota have announced they are meeting the wage demands from unions in full, while the FT reports Japanese workers are securing the biggest pay rises in 30 years. 

Quite what the inflation number means for the Fed remains to be seen.  They have made it clear they are in no rush to cut rates and are happy to assess incoming data.  The last two CPI readings that have surprised to the upside would lead one to think the Fed might leave it longer before they look to cut rates, although Powell did make it clear recently that inflation doesn’t have to be at target before they act. 

Plenty of time between now and the June meeting for Fed to look at new data and take it from there.  I am sure though that anyone looking for more than three rate cuts this year might be having to think again.  JPMorgan CEP Dimon said Fed with the economy still going strong the Fed should wait beyond June, noting that Fed could then make larger cuts later if need be. 

We saw a slight uptick in UK growth numbers this morning with GDP coming in as expected at 0.2%.  GBPUSD is back to pre-announcement levels around 1.2795 after a brief dip lower to 1.2775.  The release offers the hope that the recession in H2 2023 may indeed have been short-lived.

Elsewhere, Gold was sold off to $2150 yesterday, while Bitcoin saw an odd move of almost 5% lower from $72,000 to $68,750 later in the day before recovering to $71,000, and this morning it has pushed on to make new highs above $73,000.  The higher it goes, the more I dislike Bitcoin, I presume that’s because I didn’t sink my life savings into it when it was less than one cent.

Not a particularly busy calendar today, we will hear from a couple of generally dovish ECB officials.  I’m surprised we haven’t seen a bit more on the downside in EURUSD given the dovish tone many of their officials take, while Fed may well be thinking of delaying rate cuts.  I’ll watch the downside in EURUSD with a bit of interest.  I’m less inclined to see a move lower in GBPUSD, which I guess leads me to be bullish GBPEUR.  Given I see the upside there as being capped, perhaps we’re back to the range trading we’ve witnessed for the last few months.

Well done to Arsenal for getting past Porto to make it to the Champions League quarter finals.  The draw for the next matches is on Friday morning.  

Cheltenham festival continues, I had a look through the runners and riders this morning but no names really caught my eye other than Monty’s Star in the 2.10, given Monty is my dogs name.  Romeo Coollio in the 5.30 also put a smile on my face for some reason. 

Have a great day. 

-  10.00 EU industrial production

-  11.45 ECBs Cipollone speaks

-  14.00 ECBs Stournas speaks