BoE Haskel’s inflation warnings.

Federal Reserve Governor Bowman stated that the central bank was not seeing as much moderation in inflation as it would like and that the labour market is still very strong.

She added that there is a lot of data between now and the next Fed meeting, but she expects that the central bank will continue to increase rates.

Despite an element of caution ahead of the US inflation data, risk appetite strengthened on Monday with gains in equities amid underlying market positioning.

Gains in equities undermined defensive dollar demand and the US currency lost ground despite caution ahead of the inflation data. The currency index failed to test 1-month highs and drifted lower.

In reported comments on Monday, Bank of England MPC member Haskel stated that the central bank should be really, really careful over the risk of high inflation becoming embedded in the economy and the data would need to be watched very closely in the coming months given high levels of uncertainty.

The UK labour-market data reported an unchanged unemployment rate and a larger monthly increase in employment. The increase in headline average earnings slowed to 5.9% from 6.5% and below consensus forecasts of 6.2%, but underlying earnings accelerated to 6.7% from 6.5%.

The Swiss inflation rate increased to 3.3% for January from 2.8% and well above consensus forecasts of 2.9%. The data increased expectations of a hawkish Swiss National Bank stance.

The latest US inflation data release on Tuesday will be very important for all asset classes with potentially very volatile trading.

Consensus expectations are for a decline in the headline rate to 6.2% from 6.5% with the underlying rate retreating to 5.5% from 5.7%. Stronger than expected data would reinforce concerns over the inflation outlook and increase pressure for a more restrictive Fed policy while there will be notable relief if the data is weaker than expected.

The situation will be complicated by benchmark revisions and changes to component weightings for this release.

The Euro edged higher into the New York open with European currencies securing increased support. Net gains in equities also limited potential defensive dollar demand. EUR/USD secured an advance to highs at 1.0730 before settling around 1.0715. EUR/USD edged higher to 1.0740 on Tuesday with tight ranges.

The yen remained under pressure despite limited gains in Treasuries. USD/JPY posted strong gains to highs just above 132.90 before a correction to below 132.50. US yields edged lower on Tuesday with USD/JPY below 132.00.

Higher inflation data provided limited net Swiss franc support. EUR/CHF settled around 0.9860 with USD/CHF dipping to below 0.9200.

Sterling drew support from a rebound in global equities. The UK currency also advanced after the UK data recorded stronger than expected underlying wages data. GBP/USD advanced to just above 1.2150 while EUR/GBP retreated to 0.8830.

Commodity currencies advanced as equities posted gains and the dollar lost ground. AUD/USD advanced to 0.6975 before fading slightly and traded around 0.6970 on Tuesday. USD/CAD settled around 1.3340 as oil prices failed to hold gains.

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