FX was the only segment that saw a significant improvement in risk/geopolitical sentiment yesterday. Bond yields inched lower, equities struggled, and oil was supported until news of an imminent Iranian nuclear deal sent prices lower. In addition, the dollar downside risks seem limited given the ongoing speculation around Fed tightening. The minutes of the January FOMC meeting showed nothing more than well-telegraphed alarm over high inflation – but few indications around the pace of rate hikes – markets are proving reluctant to price out a 50bp March hike (which currently has a 50% implied probability). Today, the US calendar includes housing data and jobless claims, and we’ll hear from Fed’s Bullard (an advocate for fast tightening) and Mester. Russia-Ukraine tensions will remain the key driver for markets.
The CAD has pushed back above 1.27 and has been supported through the early part of this week amid a rebound in oil prices and broader strength in commodity prices. Canadian CPI rose 5.1% which was the highest print since 1991. Yesterday’s inflation print suggests that the BoC is behind the curve which is providing further support to the loonie. There are no market moving data releases today leaving the loonie to trade on global market themes.
EUR/USD was rejected at the 1.1400 level yesterday, a resistance that may continue to hold today as the dollar could stabilize. The risks for today appear more skewed towards a pull-back to the 1.1300 level as markets may have turned too optimistic too soon on a diplomatic solution in Ukraine. In the eurozone, the focus will mostly be on ECB speakers today although they have had a limited impact on the EUR lately.
1.3600 is proving to be a quite tough resistance for GBP/USD, and one that may hold until the end of this week as geopolitical risks may linger and give some support to the dollar. Meanwhile, a week of data releases in the UK has continued to endorse market’s bets on BoE tightening. Even though the six hikes priced in for the rest of 2022 seem too aggressive, the market’s pricing may not be heavily challenged until later in Q2which means the pound should remain supported in the coming weeks if global risk sentiment proves benign.
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