Sovereign International Daily Market Report
Euro slips to five-week lows after US producer inflation data
The euro briefly fell to its lowest level since early-January on Thursday, while the dollar rose against most currencies, following the release of another set of hotter-than-expected US producer inflation data.
A lot seems to have changed in financial markets in the past couple of weeks. The narrative a little over two weeks ago was that the Federal Reserve was nearing the end of its interest rate hike cycle, and that the clear path for the dollar was lower. Since then, a raft of macroeconomic data releases out of the US have come in above economists’ expectations, notably the January nonfarm payrolls and inflation reports. This week has been no different, with the latest retail sales and PPI inflation prints on Wednesday and Thursday respectively further raising expectations that the Fed could hike rates on two, or even three, more occasions before ending the tightening cycle.
US retail sales jumped by 3% month-on-month in January - the largest monthly increase since March 2021. While partly due to low base after contractions in November and December, this is still a very strong number and far from levels that would indicate a sharp downturn or recession. Yesterday’s producer inflation data was also perceived as bullish for the dollar, as prices rose by 6% last month, above the 5.4% expected. Market participants have subsequently gone from debating whether the Fed could raise rates on either one or two occasions, to now weighing up whether three more could be on the way. This has provided good support for the dollar, which has rallied against all G10 currencies in the past week, save the Canadian dollar.
Aside from the Japanese yen, the pound has been the worst performer in the past week, with GBP/USD briefly falling down on Thursday. The downside surprise in the January inflation print has not helped sterling’s cause, as it has dampened bets in favour of higher Bank of England rates. Swap markets now only see around a 70% chance of another rate increase at the next MPC meeting in March, and are not even fully pricing in a total of 50bps of hikes through to August - much less than expected in the US and, in particular, the Eurozone. January retail sales will be released out of the UK this morning, with another contraction expected.
领英推荐
Market Report provided by Ebury
Please contact us for any FX needs you may have +44(0)203 817 3700 / [email protected]
Whether you are a large corporate trading millions on a weekly basis, a small to medium sized enterprise trading tens of thousands on a monthly basis, or just a private individual with a one-off amount to transact for a property purchase or overseas investment, we will provide you with the most simple, cost effective route for your foreign exchange payments.