9.3
8.524 reviews
English
EN
Focus will now turn to the December U.S. inflation report, due on Wednesday. In addition, we get inflation reports on a number of emerging market currencies. Wherever they hint at an inflation spike, a rally could occur. However, after last week's relentless sell-off, sentiment in the bond market is fragile. If U.S. inflation is another upside surprise, it could test investors' nerves. If that happens, a chaotic sell-off in bonds could follow that should support the U.S. dollar – at least in the short term. Below are the major currencies in detail.
This month, too, there was another upward inflation surprise in the eurozone. Markets did not expect inflation to rise again (headline 5%, headline 2.6%). This suggests that inflationary pressures are also growing in the euro area. We think the next big shift in policy will be that the ECB will acknowledge that policy tightening cannot wait until 2023. Isabel Schnabel's speech this weekend made it clear in this regard that the transition to green energy could have an impact on inflation. Within the ECB's Governing Council, therefore, a 'hawkish' dissent is beginning to emerge. As soon as this change becomes more visible, it can give a major boost to the single currency.
In the dull week after Christmas, the British pound outperformed all its major counterparts. Trading in the pound continues to benefit from the impetus provided by the Bank of England in December by being the first of the 'big three' to raise interest rates. There will also be little macroeconomic news this week. However, Deputy Governor Broadbent's speech on Monday is likely to provide crucial information about the MPC's expectations of future rate hikes – especially since he is considered a moderate man on the "dovish-hawkish" spectrum. We still see room for further outperformance of the pound, given the strong undervaluation of the currency and the rather hawkish central bank.
The two main components of the December U.S. jobs report painted a mixed picture: the institutional survey was quite weak, the household survey much stronger. Overall, the report points out that the U.S. economy is now close to full employment and that supply-side growth will not be enough to ease inflationary pressures in the near term. There is still no tightening of fiscal policy in sight, which increases the pressure on the Federal Reserve to start policy tightening sooner. We now see the first rate hike in March and think a forecast of four rate hikes over the course of 2022 is realistic. As mentioned, all financial markets are now focused on Wednesday's inflation report. The market expectation is that both the headline and core figures will once again be the highest in decades, and we share that expectation.
By: Enrique Diaz-Alvarez
Enrique Diaz-Alvarez is chief risk officer and heads Ebury's analyst team in New York. Because of his drive, passion and thorough knowledge, Enrique is recognized by Bloomberg as one of the most accurate predictors of market movements.
About Ebury:
Ebury Makes international markets more accessible with tailor-made foreign exchange services and flexible trade credit for businesses. Ebury works with more than 12,000 organisations and carries out €12 billion in foreign exchange transactions in 140 different currencies. The company has offices in the United Kingdom, the Netherlands, Spain, and Poland. Ebury's priorities:
- Financial services normally reserved for large multinationals
- Financing your purchases
- Market knowledge and tailor-made foreign exchange services
- Our network of liquidity providers and intermediary banks
- Transactions in over 140 different currencies
Learn more at www.ebury.nl
