Inflation data leaves USD treading water - what’s ahead this week?
USA (USD):
Fed Chair Powell spoke last week and Inflation data came in exactly as expected. There was no reason for the market to buy the USD & many economists expect the USD to continue weakening as US inflation subsides.
Many economists now expect only a 0.25% hike in February in the USA. A weaker USD staged a slight recovery late on Friday - hurting GBP/USD & pushing lower to 1.2150 amidst weak GBP.
EUR/USD was 1.0650 before the inflation data now at 1.0865 (Scotia Bank suggest it will push higher to 1.1000 in the near-term).
UK (GBP):
GBP/USD ranged from 1.2050 to 1.2250 this week amid a light data calendar. This week sees unemployment data (Tuesday) and inflation data (Wednesday). The inflation data will be the key for GBP’s medium-term trend - if inflation has started to wane and the Bank of England does not continue to raise rates, GBP is likely to fall further.
GBP/EUR last week was the victim of a stronger EURO and fell from 1.1400 to 1.1240.
Europe (EURO):
This week - German inflation on Tuesday and EU inflation on Wednesday will be closely watched. The ECB sounds ready to keep raising rates and boosting the EURO - I fear it will take a big fall in EU inflation before we see a change in the ECB approach to raising rates.
The EUR is reacting by trading at 6mths highs vs US (1.0850) and 4mth highs vs GBP (1.1240)
China (RMB):
Authorities look set to loosen the harsh restrictions imposed on China’s big tech as we approach the Lunar New Year - this will boost Asian equities.
As China opens up, Aberdeen Asset Management opinion is that this may increase pressures on global demand-side which will filter through into global inflationary pressures.
Canada (CAD):
The Canadian currency strengthened to 6week highs vs the weakening USD, bouyed by oil prices rebounding - on the back of China opening up.
