Currency pairs mostly held a tight range overnight as traders’ paired positions ahead of this morning’s inflation data.
Overview
The Bloomberg Spot Dollar Index was down 0.1% overnight. Inflation data surprised the upside and has sent the greenback into rally mode. Yearly inflation came in at 7.5%, higher than the 7.3% estimated by economists and compared to 7.0% in December. The higher inflation is causing markets to increase bets that the Federal Reserve the Fed will find the scope to raise rates at a faster clip.The data comes after two Fed speakers yesterday said that all options are on the table for the size of the first interest rate hike. It is essentially a toss-up as to whether the Fed will hike rates 25-50 basis points. A 25 bp hike is still our base case scenario. The Fed Bank of Cleveland President Loretta Mester seems to agree after she said she doesn’t see a “compelling case” for a 50-point hike.
There is no further top-tier data on today’s docket. The Fed’s Tom Barkin will speak after the bell this evening.
What to Watch Today…
- No major economic events are scheduled for today
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EUR
The Euro is swinging within a 50-basis point range this morning following the release of U.S. CPI revealing the highest level of inflation since 1982. Economic indicators are non-existent until Monday, but it is worth paying attention to the situation in Ukraine, which keeps elevating the prices of oil as well as gold since investors are searching for safe-haven holds while the risk of conflict is gauged.
If indeed today’s CPI numbers give merit to the Fed hiking interest rates, the dollar should rise short-term unless the European Central Bank is shown some shocking inflation by the start of March.
CAD
The British Pound rose 0.3% overnight on the back of slight dollar weakness. Market participants are eagerly awaiting a speech from Bank of England Governor Andrew Baily at noon EST. The speech comes after Bank of England chief economist Huw Pill warned against aggressive interest rate hikes.
A dovish double-down from the BoE chief would be seen as a dovish signal and likely limit the sterling’s recent gains. Q4 U.K. GDP will cross the wire tomorrow morning.
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