The US$ is flat, oil weakens, equity markets are mixed and US yields strengthen ahead of the Feds interest rate decision. Tuesdays US PPI rose by 9.6% y/y making it the largest increase in more than a decade, highlighting US inflation concerns with markets now expecting to see the Fed pivot to a faster tapering and setting the stage for increased US rate hikes. Today, the US Retails sales report may have a limited impact on currency markets ahead of the key Fed decision which will be the primary market driver intraday. In other news. The US House passes measures clamping down on products from China’s Xinjiang region over concerns about forced labor. The US Senate approves boosting the debt limit to US$31.4tn. The new German foreign minister warns Russia it will face ‘massive consequences’ if it invades the Ukraine. Japan admits overstating GDP component data for years and inflating the country’s economic growth figures. Covid. The UK records 59,610 new covid cases, its highest levels since January. The UK lifts all countries from the Covid travel red list on Wednesday. German police foil ‘anti-vaxxer murder plot’ against a state premier. The US death toll from covid hits 800k. In currency markets. The US$ is steady ahead of the Fed decision, while GBP & AUD firm, and petro-currencies CAD & NOK remain under selling pressure. Turkish lira weakens 2.3% today, down 72.3% 6 months and YTD is down 98.14% vs US$. CNY & Asian currencies are flat while outlier INR is down 0.35% vs US$. Trading currencies are mixed with JPY & MXN down 0.1%, NZD & NOK weaken 0.15% while ZAR tumbles 0.75% and outlier AUD firms 0.3% vs US$.
Oil prices drop 1% as markets anticipate supply growth will exceed demand as more countries reimpose covid restrictions. C$ continues weaker having its longest losing streak in 21-months as the Omicron risk puts pressure on oil prices and supports the safe-haven US$. C$ tests 1.2882 its weakest level since Sep 21st and has the potential to retest 1.2948 (Aug21st) its weakest level in 2021 into the Fed statement today. Alongside the Fed comments today markets will also be focused on CAD CPI and US Retails sales for intraday direction. Support resets 1.2795 while resistance rises to 1.2948 (2021 high).
Euro remains under selling pressure ahead of the Fed rate decision and Super Thursday. Euro looks vulnerable to further weakness as markets expect greater action from the Fed after Tuesdays strong PPI report while the ECB is expected to remain dovish and keep rates on holds. The divergence in interest rate polices between the ECB and the FED – BoE will be the primary driver for Euro weakness. Intraday markets will be driven by the Fed comments. Support resets to 1.1205 and resistance lowers to 1.1325.
EURGBP weakens as markets wait for the Fed – ECB – BoE rate decisions today & Thursday. Support at .8440 (1.1848) with resistance at .8600 (1.1628)
GBP rallies on strong inflation data and ignores domestic political uncertainties. The UK inflation tops 5%, testing a decade high and increases expectations that the BoE may raise interest rates as soon as Thursday. UK PPI hit 14.3% and Retail Price index also spiked to 7.1% all setting the stage for BoE action into Super Thursday. Domestically the UK PM faces questions about his leadership as almost 100 conservatives voted against new covid restrictions. Expect GBP to find support vs US$ and has room to strengthen vs Euro heading into the BoE rate decision tomorrow. Support rises 1.3220 and resistance resets at 1.3310.