Annual UK budget today.
There was still an important element of caution, but overall financial stresses eased during Tuesday with relief that there were no further banking casualties at this stage.
US consumer prices increased 0.4% for February which was in line with consensus forecasts and the year-on-year rate retreated to 6.0% from 6.4% which was also in line with expectations.
Underlying prices increased 0.5% on the month, slightly above consensus forecasts of 0.4%, although the year-on-year increase matched expectations at 5.5% from 5.6% previously. Used vehicle prices dipped for the seventh successive month with a 13.6% annual decline, but there was a strong increase in shelter prices as well as transport services.
Yields dipped briefly at Tuesday’s European open, but there were significant net gains on the day following the he drop seen on Monday.
The US 2-year yield settled around 4.20%.
There were still concerns surrounding core inflation trends, but expectations that the Fed would have to be more cautious given on-going financial-sector concerns.
There was, however, less volatility in Fed Funds futures with markets settling around a 70% chance that rates will be increased by 25 basis points next week with a 30% chance of no change.
The dollar rallied at time during Tuesday, but was unable to hold the gains and the dollar index closed marginally lower on the day.
Chinese industrial production and retail sales data was close to expectations with annual growth of 2.4% and 3.5% respectively. The statistics bureau stated that the economy is showing signs of stabilisation and recovery.
There are important US data releases on Wednesday with the retail sales and producer prices reports as well as the New York Empire manufacturing index. Retail sales are expected to correct slightly after a surge last month.
There was still choppy trading on Tuesday, but overall volatility eased from Monday’s levels. US and German yields both recovered during the day. The dollar failed to hold intra-day gains amid expectations of a more cautious Fed. There was limited net relief from the US inflation data. EUR/USD secured a limited net advance, but stalled near 1.0750 and settled around 1.0740.
Higher US yields limited yen support. USD/JPY retreated sharply from 134.90 highs to near 134.00 before a fresh recovery to 134.60 on Wednesday.
The Swiss franc lost ground as financial fears eased slightly. EUR/CHF recovered to the 0.9800 area while USD/CHF settled around 0.9140 from 0.9160 highs.
Sterling was unable to make further headway as yields recovered elsewhere. GBP/USD hit resistance near 1.2200 and settled just above 1.2150.
Commodity currencies secured limited net gains amid a tentative risk recovery and subdued dollar tone. AUD/USD consolidated around 0.6680 and failed to hold above 0.6700 after the Chinese data. USD/CAD settled around 1.3685 despite the slide in oil prices.
|12:30||UK Annual Budget Release|
|12:30||US Core PPI m/m||0.4%||0.5%|
|12:30||US Core Retail Sales m/m||-0.1%||2.3%|
|12:30||US Empire State Manufacturing Index||-7.9||-5.8|
|21:45||NZD GDP q/q||-0.2%||2.0%|