Most risk currencies rebounded against the US dollar yesterday, led by the Swedish krona, which jumped by more than 2% after the Riksbank’s latest policy decision.
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ome mid-week comments from chair of the Federal Reserve Jerome Powell have somewhat eased expectations for higher US rates, which can partly explain the modest retracement in the greenback. Powell once again hinted that additional rate hikes were likely needed, although stopped short of saying that the Fed was on course to raise rates higher than the FOMC had outlined in its December ‘dot plot’. Last week, the bank indicated that it was still too early for the full effect of higher rates to be seen in US data, and that has also perhaps made investors wary of adopting an overly bullish dollar view before next week’s all-important US inflation report.
Sterling was one of the better performers among the G10 currencies on Thursday, with the pound edging back towards the $1.22 level on the dollar. The rebound in the UK currency was helped on its way by some hawkish comments from Bank of England officials. In its communications last week, the MPC hinted that a pause in the hiking cycle may be on the way. We didn’t exactly get a U-turn on these remarks on Thursday, although most MPC members present at yesterday’s monetary policy hearings continued to emphasise the importance of bringing down rates of UK inflation. Governor Bailey noted that the bank remained concerned about persistently high inflation, and that more evidence of an easing in price pressures was needed, while fellow members Pill and Haskel warned over complacency and the need to act forcefully if needed.
The euro slightly lagged behind sterling yesterday. Thursday’s German inflation figures for January came in much softer-than-expected, although this was largely overlooked by investors, given that the Euro Area data was already released last week. Arguably the main news headlines among the major currencies concerned the Swedish krona, which leapt higher following yesterday’s hawkish announcement from the country’s central bank. The Riksbank raised rates by another 50bps, while both hinting at another move in April and explicitly saying that it wanted to see a stronger krona.
Attention in markets today will be on this morning’s fourth quarter UK GDP figures, and a handful of speeches from a number of central bank officials in the UK, Euro Area and the US. There is a possibility, however, that we may see relatively contained moves in the major currencies leading up to next Tuesday’s US inflation number, which has become the single most important data release on the economic calendar in recent months.
