Markets braced for latest US CPI reading.
The University of Michigan consumer confidence index recovered further to 66.4 for February from 64.9 the previous month and above expectations of 65.0. There was a significant recovery in the current condition’s component, but this was offset by a slight decline in the expectations component.
The 1-year inflation expectations index increased to 4.2% from 3.9% while there was no change in the 5-year expectations index at 2.9%.
Philadelphia Fed President Harker stated that the January jobs report didn’t change the outlook for monetary policy. He added that the Fed needs to hike rates to at least 5.0% and stay there for some time.
He also commented that the central bank was not likely to cut rates this year but may be able to do so in 2024 if inflation starts ebbing.
Overall risk conditions have maintained a more fragile stance with concerns that the US Federal Reserve will have to maintain a very hawkish policy stance to curb inflation.
The US-China tensions surrounding shooting down objects also contributed to a more defensive policy tone.
The Canadian labour-market report recorded very strong employment increase of 150,000 for January compared with expectations of 15,000, although there was a substantial downward revision for December to 69,000 from 12,000. The unemployment rate was unchanged at 5.0% and compared with expectations of 5.1%.
Bank of Japan Governor nominee Ueda will face parliamentary hearings on February 24th. Ahead of the hearings, any policy hints will be watched very closely with further yen volatility likely.
The latest US consumer prices data will be released on Tuesday and will be extremely important for underlying market sentiment across asset classes.
The Euro was unable to make any headway on Friday and gradually lost ground during the day. The overall risk mood was more defensive which provided an element of dollar support. EUR/USD retreated to lows just below 1.0670. EUR/USD posted 1-month lows just below 1.0660 on Monday before edging higher to 1.0680.
Higher US yields undermined the Japanese currency on Friday. USD/JPY secured net gains to 131.40. There were further USD/JPY gains to 132.25 on Monday as higher US yields and reduced speculation over a policy shift undermined the Japanese currency.
The Swiss franc secured net gains amid further reservations surrounding the global outlook. EUR/CHF retreated to 0.9860 before settling around 0.9870 with USD/CHF securing a limited net advance 0.9250.
Sterling was hampered by underlying reservations surrounding the UK outlook with less-confident risk conditions also sapping support.
The Australian dollar lost ground as the US currency posted gains. AUD/USD retreated to lows around 0.6910, but did find some support below 0.6900. The Canadian dollar surged after the Canadian employment report. USD/CAD dipped to lows around 1.3340 before settling around 1.3370 on Monday as oil prices pared gains.