UK inflation surges to fresh 30-year high.

US consumer prices increased 1.2% for March which was in line with consensus forecasts. The year-on-year inflation rate increased sharply to 8.5% from 7.9% which was slightly above market expectations of 8.4% and the highest rate since the end of 1981.

Energy prices surged 11.0% on the month with an annual increase of 32.0% while fuel oil increased 70% on the year. Food prices increased 1.0% on the month with an 8.8% annual increase. Underlying prices increased 0.3% and below forecasts of 0.5% with the annual rate marginally below expectations at 6.4%. This was still the highest rate since August 1982.

There was a 3.8% decline in the prices for used trucks on the month while apparel prices increased 0.6%. There was some optimism that the inflation rates were close to peaking.

US Treasuries were little changed ahead of the New York open on Tuesday and then rallied following the US consumer prices data. Yields continued to decline into the European close with the 10-year yield dipping to the 2.70% level. There was, however, selling on rallies with the 10-year yield at 2.75% on Wednesday.

Fed Governor Brainard stated that reductions in the balance sheet could come as soon as June after a decision is made in May. Richmond Fed President Barkin state that rates should move rapidly to neutral and then tighten further if needed while St Louis head Bullard insisted that rates would have to increase above neutral.

There are very strong expectations that there will be a major Russian offensive on the Donbas within the next few weeks at the latest. Russian President Putin stated that peace talks with Ukraine were at a dead-end while the German industry stated that gas stocks would last until late summer if Russian supplies were cut off.

US President Biden took a hard-line stance with a statement that Russian President Putin was committing genocide. Fears over a prolonged conflict continued to sap Euro support.

The Reserve Bank of New Zealand announced a 0.50% increase in interest rates to 1.50% compared with consensus forecasts of a 0.25% increase.

The New Zealand dollar spiked higher after the decision, but quickly retreated to post net losses as the RBNZ did not revise the expected end-point higher and will look to reach this point more rapidly.

The headline UK inflation rate surged to a 30-year high of 7.0% for March from 6.2% previously and above consensus forecasts of 6.7% while the core rate increased to 5.7% from 5.2% and the record high for the current series. Market reaction was muted given that most major central banks are facing the same inflation problems and tightening monetary policy.

The Bank of Canada will announce its latest policy decision on Wednesday. Consensus forecasts are for a 0.50% hike in rates to 1.00% following hawkish rhetoric from the bank. Forward guidance will be important both for the Canadian dollar and wider expectations surrounding the speed of global central bank policy tightening.

The German ZEW economic data was slightly stronger than expected, but still indicated a decline on the month. The Euro again failed to hold gains with notable selling interest on rallies. The dollar corrected lower after the inflation data but found strong support on dips. EUR/USD failed at 1.0900 and dipped steadily to lows around 1.0810 before a slightly recovery.

USD/JPY found support below the 125.00 level with gains to 125.65 on Wednesday. The Swiss franc maintained a firm tone during the day on long-term buying support.

EUR/CHF dipped below the 1.0100 level before stabilising. Sterling stabilised but struggled to make headway amid a lack of confidence in the outlook. GBP/USD was held close to 1.3000. GBP/EUR held around 1.2000.

Commodity currencies recovered strongly during Tuesday but failed to hold their best levels with a significant reverse as the dollar secured renewed gains. AUD/USD was held below the 0.7500 level with net losses to 0.7440 on Wednesday. USD/CAD found support below 1.2600 and rallied to 1.2630 ahead of the Bank of Canada rate decision. From highs near 0.6900, NZD/USD dipped sharply to 0.6800.

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