Equity markets are enjoying a short period of calm as 4Q earnings reports continue to come in. Despite the US 'tech-wreck', other sectors of the equity markets are doing quite well. A more stable risk environment is allowing some recovery of the recently battered commodity currencies. Markets are eagerly waiting on the US January CPI reading tomorrow for further direction - any further upside here will warn that rates need to stay higher for longer - damaging growth prospects further.
In the US today we will hear from Fed speakers Michelle Bowman and Loretta Mester later on. A 25bp Fed rate hike on 16 March is fully discounted as are five hikes by the end of the year. Tomorrow's US CPI release will help determine whether the Fed starts off with a 25bp move or 50bp in March.
The CAD continues to remain a little weak trading close to the 1.27 area, as energy prices continue to drop. WTI has fallen under $90 as markets focus on diplomatic efforts to ease Ukraine tensions and reports indicating progress on the Iran nuclear talks has brought a deal within reach (meaning Iranian crude oil could find its way back onto tight international markets later this year). The CAD has not fully reflected the recent gains in crude so the impact of weaker prices may be a little muted though weak crude may still represent a minor headwind for the CAD in the short run at least.
EUR/USD continues to trade in narrow ranges and has not been hit by European Central Bank doves saying that markets have overreacted to last week's ECB press conference. The focus today will be on how aggressively the ECB revises its 2023 CPI forecast and what that may mean for the ECB inflation forecasts released on 10 March. Any substantial revision well above 2.0% could give the euro a little lift today. The EUR/USD should trade toward the 1.1460/80 area today and remain well supported above 1.14.
GBP remains well supported by hawkish Bank of England sentiment. The market fully prices a 25bp BoE hike on 17 March and a further four hikes thereafter. That pricing seems very aggressive but may not be unwound until we have seen the turn in UK CPI. For today we will hear from BoE Chief Economist, Huw Pill. He was one of the majority five MPC members voting for just a 25bp hike last week. We think the BoE will welcome the role the strong pound is playing in deflecting some of the energy price surge - and see no reason for the BoE to start railing against aggressive pricing of the BoE trajectory.