The U.S. dollar held a tight range overnight, slipping slightly.
Overview
The greenback was under pressure yesterday amidst a rally in global stocks. The higher risk sentiment has stalled today, however. Despite Russia announcing it is moving some of its troops away from the Ukrainian border, NATO Secretary General Jens Stoltenberg said that there is no proof of de-escalation. Geopolitical and headline risks will remain over the coming days.A report this morning shows positive signs for the U.S. economy as we move past Omicron. Retail sales surged 3.8% in January, above estimates. Sales less autos rose 3.3%, smashing estimates of a 1.0% gain. The data has yet to move the greenback, likely because most of last month’s numbers were revised downward. Later, the minutes of the latest Federal Reserve meeting will be released at 2 pm. We will be watching closely for clues into how aggressive the Fed will be when it undoubtedly hikes rates next month. Our base case has been that the Fed would hike rates 25 basis points in March. However, recent inflation data has caused us to move closer to a “toss-up.” Markets are currently pricing in better than 50% chance of a 50-basis point hike.
What to Watch Today…
- Fed minutes at 2 pm
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GBP
The British pound popped higher overnight against the U.S. dollar but has since retreated from its overnight highs. U.K. inflation unexpectedly accelerated for a fourth consecutive month. Prices grew 5.5% year-over-year, touching a three-decade high. Expectations were for inflation to remain elevated but at 5.4%.
Much like the situation in the U.S., the increased prices pressures are increasing bets that the Bank of England will raise rates by 50 basis points in March. Unlike in the U.S. where we now see a 50-basis point hike as a “toss-up”, we still believe the Bank of England will hike rates by 25 basis points at the conclusion of their March 17th meeting.
CAD
The Canadian dollar gained 0.4% against its American rival overnight, benefitting from a resurgent price of oil. After slipping yesterday, WTI crude futures were up 1.3%. The increase is the fifth gain over the last six sessions. The loonie has slightly extended its gains after a report showed that Canada’s consumer inflation exceeded estimates. Inflation popped 0.9% in January, up from the 0.6% expected. Annual inflation is now at 5.1%, up from 4.8% in December.
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