Weekly FX Market Recap: Feb. 7 – 11

It was a busy week of headlines and data updates, but it looks like the main continued to be on inflation and an aggressive global rate hike outlook.

This pushed higher-yielding currencies into the top spots against the lower-yielding majors, even after risk-off vibes on Friday.

Notable News & Economic Updates:

Chinese Caixin services PMI dipped from 53.1 to 51.4 vs. 50.5 forecast

Oil slid over 2% on Tuesday as talks between the U.S. and Iran could allow more oil exports from Iran

Poland central bank raises benchmark by 50 basis points to 2.75%; the highest since 2013

EIA: U.S. crude stockpiles drop unexpectedly by 4.8 million barrels vs. a 1 million barrel decline the previous week.

ECB President Lagarde pledged a ‘gradual’ adjustment to monetary policy on Monday during speech to European Parliament

U.S. posts its largest year-over-year inflation increase since 1982 at 7.5%; Equities drop & bond yields rip higher on speculation the Fed will be more aggressive to contain surging inflation

Global commodity prices soar 50% y/y in January, fastest pace in 27 years

Reserve Bank Governor Philip Lowe see inflation target overshoot as ‘acceptable risk’; a rate rise is “plausible” later this year if needed

The People’s Bank of China (PBOC) pledged it would keep liquidity ample to support key sectors and weak links in the economy

Escalating tensions at the Ukraine border as Russia begins massive military exercises in Belarus

Intermarket Weekly Recap

We saw relatively quiet price action early in the week, likely due to traders being cautious ahead of the highly anticipated U.S. inflation data on Thursday.

And based on the rising bond yields and gold prices ahead of the event, it looks like traders were expecting a very strong number. We also saw higher-yielding major currencies outperforming during this period as well.

Come Thursday, the market got what it expected as the U.S. CPI number came in at 7.5% y/y, above the forecast of 7.3% and the highest rate of inflation in 30 years.

The broad market reaction was fierce as the 10-yr U.S. Treasury yield spiked above 2.00%, which simultaneous took down equities and gold through the rest of the Thursday session.

Oil and crypto markets were initially unaffected, likely due to traders focusing on specific catalysts for both sectors. Rising Ukraine-Russia tensions and falling oil inventories data likely kept the bid in on oil prices.

And for digital assets, the bulls were likely feeding off of a net positive string of headlines this week, including news that Russia is looking to regulate crypto and news of KPMG Canada (a major accounting firm) was adding crypto to their balance sheet.

Eventually, though, risk aversion sentiment was able to permeate through all markets on Friday as focus quickly shifted to the tensions between Russia and NATO as Russian military exercises began in Belarus.

Bond yields, equities and crypto prices fell on the session as traders were likely looking to take off risk to avoid any possible negative developments over the weekend. This of course had the usual risk-off affect on the safe haven currencies with the U.S. dollar, Swiss franc and Japanese yen spiking higher into the weekend.

This was not enough to take down this week’s FX winners, the comdolls, led by the Aussie. It’s likely the combination of high commodity inflation data updates, rising oil prices, and expectations of future rate hikes from their central banks that kept AUD, NZD, and CAD net green all week.

USD Pairs

December Consumer Credit grew by $18.90B m/m vs. $22.0B consensus & $38.82B in the prior month (revised from $39.99B).

Fed’s Bostic says more than 3 hikes possible this year, but “every option on the table”

US December wholesale inventories +2.2% vs +2.1% prelim

The U.S. consumer price index climbed 7.5% y/y in January, following a 7% annual gain in December

Weekly U.S. unemployment claims: 223K vs. 239K previous, 227K forecast

St. Louis Federal Reserve President James Bullard calls for big hike in interest rates to fight inflation; would like to see 100 bps interest rate hike before July

The preliminary read for the January University of Michigan Consumer Sentiment Survey fell to 61.7 vs. 67.2 in December

GBP Pairs

BRC: U.K. retail sales up by 8.1% y/y in Jan (vs. 0.7% expected, 0.6% in Dec), likely due to easing lockdown restrictions

Bank of England chief Andrew Bailey was slammed for asking Brits not to demand pay raises

The Royal Institution of Chartered Surveyors (RICS) reported a net balance of +74% of its members reported house price increases in Jan. vs. +70% in Dec.

Bank of England chief economist Huw Pill cautions against an ‘aggressive’ approach to rate hikes

U.K. preliminary GDP shows 1.0% q/q growth in Q4 2021; 7.5% y/y in 2021

EUR Pairs

German industrial production slowed 0.3% vs. projected 0.4% uptick

ECB’s Kazaks says a rate hike in July is unlikely

Eurozone Sentix Investor Confidence: 16.6 in February vs. 14.9 in January

German trade surplus narrowed from €10.9B to €6.8B vs. €11.3B forecast

ECB board member Schnabel say they may need to raise rates if inflation expectations rise too high

European Union raised inflation forecasts from 2.6% in 2021 to 3.5% in 2022 due to supply disruptions and high energy prices

ECB’s vice-president Luis de Guindos says that regardless of what other central banks are doing, the ECB will raise the main interest rate only “if and when” it sees inflation stabilizing at its 2% goal

ECB’s chief economist Philip Lane says Euro zone inflation will return to trend without significant policy tightening from the European Central Bank

CHF Pairs

Swiss jobless rate improved from 2.4% to 2.3% in January

Swiss CPI: +1.6% y/y in January vs. +1.5% forecast; +0.2% m/m

CAD Pairs

Canada trade deficit was C$137M in December, below forecasts of C$2.5B surplus

Bank of Canada Governor Tiff Macklem signaled rate hikes will partly depend on business investment; Also says trucker protests will only worsen supply-chain issues

NZD Pairs

New Zealand inflation expectations surge to 3.27% from 2.96%

New Zealand credit card spending up 3.0% vs. 0.6% consensus

AUD Pairs

Australia will open border to double vaccinated visitors on Feb. 21

Former RBA member John Edwards said the Reserve Bank of Australia could raise interest rates four times in late in 2022

Australia’s AIG services index improved from 49.6 to 56.2

Australian retail sales dropped -4.4% in December but still up +8.2% in Q4 2021

ANZ job advertisements down -0.3% in January after a downward revised -5.8% slide in December

Australia NAB business confidence survey showed business conditions falling by 5 points but confidence rebounding by 15 points in Jan.

Reserve Bank Governor Philip Lowe see inflation target overshoot as ‘acceptable risk’; a rate rise is “plausible” later this year if needed

JPY Pairs

Japan’s coincident index dipped 0.2 to 92.6 in December

Japan real wages were down by -2.2% in Dec, the biggest drop since May 2020

Japan’s household spending fell by -0.2% Dec, the fifth straight month of decrease

Japanese preliminary machine tool orders jump to 61.4% from 40.5%

Japan’s producer prices were up by 8.6% y/y, the 11th straight month of producer price increases

This post first appeared on babypips.com