Forex

The current inflation tends to have a broad sticky element to it. This price resilience will likely concern the Fed until it shows moderation. However, per the preliminary University of Michigan Inflation Expectations survey, consumer expectations moderated to 4.6% (4.8% - previous). Moreover, the pricing elements from last week's Empire State and Philly Fed Manufacturing Indexes indicate moderation. Therefore, 75bps seems to make more sense at this stage.

The New Zealand economy grew more than expected in the second quarter, as today’s data showed and the pair consolidates just off Wednesday’s 2+ years low

The US interest rate is a crucial driver of financial markets in the current environment. This dynamic is despite the communication out of the ECB. I.e., the chart above shows the US real rate and its correlation coefficient (cc) with the EURUSD. The cc is at -58% and has been robust since the real rate turned positive at the end of April (green dashed line). Therefore, the current upswing in…

Yesterday’s acceleration in US core inflation led to another resurgence, but Japanese officials provide renewed verbal support to the battered Yen, sending the pair lower today

Whilst the greenback has pulled back over the last two weekly candlesticks (green square), it has a high correlation coefficient to real rates, at 77%. As such, we are interested in the real rate's reaction to any news release that may impact expected Fed monetary policy, such as today's CPI release.

The common currency rallies today, in the aftermath of last week’s “jumbo” rate hike by the European Central Bank and the hawkish rhetoric by policy makers

The pair remains upbeat, without any big reaction to today’s somewhat mixed economic data from the UK, after last week’s rebound form the multi-decade lows

The Japanese Yen manages to elicit support from the verbal interventions we have seen over the last few days, sending the pair lower today

The ECB has front-loaded and communicated that it is fully determined to do more, but the market may not be buying into the narrative. If the central bank cannot significantly impact Eurozone inflation, the higher rates won't bring inflation down to its target but will adversely affect economic activity.

Initially, the deficit spending and tight monetary policy may add support for GBPUSD. However, PM Truss has also promised to slash taxes, costing £38bn pa. This deficit increase may adversely affect the UK risk premium as gilts feel the pressure, ultimately exerting pressure on GBPUSD.