January CPI rise backs Federal Reserve rhetoric, UK CPI provides downside surprise, dollars decline primarily due rate expectations.
February 15, 2023
GBP/USD 1.2092 GBP/EUR 1.1273 EUR/USD 1.0727 USD/CAD 1.3399 EUR/CHF 0.9894 EUR/SEK 11.1236 EUR/NOK 10.9092 EUR/DKK 7.4524 USD/ILS 3.5230 AUD/USD 0.6908 NZD/USD 0.6289 USD/SGD 1.3335 USD/JPY 133.30 USD/CNH 6.8481 USD/INR 82.7873 EUR/ILS 3.7790 GBP/ILS 4.2599 USD/ZAR 17.9540
UK inflation slows more than expected as fuel prices drop - CPI rose 10.1% YoY, in January, the lowest since September and better than the 10.3% expected. Both goods and services saw a fall. This figure is still however 10 times the BOE's target. BOE Bailey hopes that inflation will ease drastically this year with the economy entering recession along with the fall in energy costs, however the shortage of workers pushing up wages is of top concern. Money markets adjusted their forecasts, seeing a 4.55% peak, rather than the 469% peak expected yesterday.
GBPUSD dipped on the print sitting in the 1.2080 region, after reaching highs of 1.2269 yesterday afternoon following the US CPI print which caused a bit of volatility for the pair. Cable now sits up 0.32% this week. GBPEUR dropped as much as 0.6% in build up to the print and sits in the 1.1280 region as we print.
Jonathan Haskel of the BOE, said that the Brexit has caused a lack of business investment growth since the 2016 referendum, wiping out £29bn in investment and fueling the economic slowdown. This is at a cost of equivalent to £1,000 a household.EUR
As part of the latest sanctions package, the EU is poised to force banks to report information on Russia central bank assets.
Yesterday, Eurostat confirmed Q4 GDP growth at +0.1% QoQ - although this is a weak performance, market's see this as remarkable compared to what was feared just a few months ago. The underlying momentum of the economy remains weak however.
EURUSD was mixed yesterday around the CPI print, reaching highs of 1.0803 and lows of 1.0714. The pair sits in the 1.0725 region as we print up 0.45% this week - the retracement from Tuesday highs appear mainly due to USD strength.
ECB member de Cos said today, that “withdrawal of fiscal support measures could make inflation more persistent.” He also noted that "the upward effects of energy and food commodity prices could still be significant in 2023.”USD
Federal Reserve officials said interest rates may need to move higher than anticipated to ensure inflation continues to fall. Yesterday’s CPI blunted the trend of declining US inflation over the past few months. The report showed an increase in Energy prices, which slowed goods disinflation. The dollar’s strength following the report comes from the CPI convincing investors round to the Federal Reserve’s school of thought regarding higher rates.
The drop in the dollar since early November has been primarily driven by expectations of a less hawkish Fed, and a greater risk appetite, according to a new Bloomberg model. The model suggests that the market perception of a more-relaxed monetary policy has accounted for 5 percentage points of the 9% drop seen since November.
The dollar whipsawed following the CPI print, before finding some upward momentum to close the day slightly higher. The dollar trades 0.25% higher intraday. The NASDAQ closed slightly higher up 0.57%.ASIA/PACIFIC
RBA Chief Philip Low acknowledged interest rate rises are unpopular and has defended the central bank against criticism from the public.
The PBOC injected $29.1 billion with its medium-term lending facility.ILS
Israel exported oil for the first time sending a shipment to Europe from Energeans offshore Karish field. This is a significant diversification since Israel started natural gas exports several years ago. USDILS trades 0.3% higher intraday.Data & EventsUK House Price Index
Euro-Area Industrial Production
US Jan Retail Sales
US Jan Industrial Production
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