Elevated yields favour dollar, Canadian inflation in spotlight
Primary market focus remains centred around the Fed and how it will tackle inflation, with market participants juggling the premise of how many rate hikes will unfold this year. Expectations almost ‘guarantee’ three hikes but the dollar’s recent gains have been fuelled by rising treasury yields, which have supported the dollar index around the 95.60 mark. US stock futures are somewhat finding their feet after the correction, while the 10-year treasury yield has hit 1.84%.
The yen is holding around the 114.50 level per dollar, while gold ticks marginally higher to $1,818 /oz.
UK inflation at highest level since 1992, euro lags despite pickup in growth
Realistically the ECB will stick to its guns in jumping onto the rate train, set to the timeline of early 2023. That said, should persisting inflationary pressures and supply shortages weigh on economic growth in the eurozone, which has recently gained some momentum, bets of a hike could increasingly poke at markets.
The euro has failed to sustain recent headways, and should the dollar continue to lead, the common currency could remain subdued for a while longer (currently at $1.1335). EURGBP has slid close to the 0.8300 mark as the euro lags the better performing pound, which is also holding up better against the king dollar.
The pound improved to $1.3640 after ending 2021 with unexpected stronger yearly inflation data of 5.4% in December, higher than November’s 5.1%, and beating estimates. The core component also rose from November at 4.0% to 4.2% in December with consumers paying a 7.5% increase in goods on a yearly basis in December, the most since 1991.
The stronger inflation data in the UK today – mainly around soft consumables – has improved the odds that the Bank of England is most likely to proceed with raising interest rates in February, as this has underpinned pressure households are currently facing. Households are encountering increases in everyday goods, while improvements in wages lag, and ministers are considering ways to soften another blow, estimated to hit households in April, that being a surge in utility bills.
Later today at 14:15 GMT Governor Bailey is due to speak regarding the BoE Financial Stability Report before the Treasury Select Committee, in London.
Oil uptrend intact and loonie stout ahead of CPI data
WTI futures are around $86.30 per barrel, above seven-year highs. Supply disruptions, production gaps on OPEC+ side, shrinking stockpiles and robust demand may be the perfect recipe to underpin oil further.
Canada’s inflation figures will be released today at 13:30 GMT and are likely to provide a clearer picture in relation to whether the Bank of Canada will cement a rate hike next Wednesday. The Canadian economy is very strong even though it is confronted with elevated inflation and supply shortages. Stronger inflation figures could strengthen the loonie, sending the pair to test the C$1.2450.
US building permits and new housing starts are due at 13:30 GMT, while BoE Governor Bailey is due to speak at 14:15 GMT.
