The U.S. dollar is mostly flat to start today after a slight sell-off yesterday afternoon.
Overview
Yesterday’s focus was on the release of the minutes of the latest Federal Reserve meeting. Policymakers were less hawkish than some had expected, causing the greenback to stumble. While always important, yesterday’s minutes had to be taken with a grain of salt because the meeting happened before the most recent inflation data that showed both producer and consumer price pressures topping estimates.Markets are pricing in at least 150 basis points of tightening this calendar year, up from 75 basis points in early January. As we stated yesterday, we have adjusted our expectations from a 25 bp bump in March to a “toss-up” as to whether the Fed decides on a more aggressive 50 bps is appropriate.While there are two Fed speakers and some second-tier data on today’s docket, traders are focused on Russia/Ukraine developments. Last night, the U.S. announced that Russia’s claims of troop withdrawal were “false.” Russia’s Foreign Ministry has denied the claim that it is adding troops and repeatedly denies any plans to invade its neighbor. Regardless, market participants are wary and safe-havens such as the Japanese yen and gold have risen.
What to Watch Today…
- No major economic events are scheduled for today
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JPY
The safe-haven Japanese yen has found favor with investors, gaining even as global equities were resilient overnight. USD/JPY moved down to a 10-day low as geopolitical tensions caused investors to seek out the relative safety of the yen. The U.S. and U.K. have said that instead of withdrawing troops, Russia has added as many as 7K troops in recent days.
The current estimate of Russian troops along the border is around 150K, and the U.S. has said that an invasion appears “imminent.”
CAD
The Canadian dollar slipped a touch overnight as the currency’s fate remains largely tied to the price of oil. WTI crude futures slid 1.7% to $92.05. Oil prices have fluctuated greatly this week and headline risk over Russia may continue that trend. Much like its rivals, the Bank of Canada seems poised for more interest rate hikes in the coming months. Bank of Canada Deputy Governor Tim Lane said yesterday that the central bank remains “alert” and continued on to say that inflation could be stickier than forecast. The hawkish comments are solidifying market expectations of an interest rate hike in the coming weeks.
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