BoE Expectations increase.
The Fed’s Beige Book reported that overall economic activity was little changed in recent weeks. Overall price levels continued to rise moderately but selling price pressures had eased in manufacturing and services and overall inflation pressures appeared to have eased slightly.
The survey also reported that banks had tightened lending standards while loan demand had eased.
New York Fed President Williams stated that US inflation is too high and the Fed will act to lower price pressures. He added that inflation is moderating, but demand is still outstripping supply. He added that it will take some time to gauge the impact of tighter banking conditions.
There was no push back against very strong market expectations that rates would be increased at the May policy meeting.
Higher than expected readings for headline and core inflation triggered a fresh increase in interest rate expectations. The chances of a rate hike to 4.50% at the May meeting are now seen at close to 100% while markets also now expect that rates will peak at 5.00%.
The Euro-Zone current account surplus widened to EUR24.3bn for February from EUR17.0bn the previous month and well above expectations of EUR6.7bn. Although there was a substantial deficit in the second half of 2022, the Euro-Zone recorded a 12-month surplus of EUR114bn and equivalent to 0.9% of GDP.
Markets overall were again held in tight ranges on Wednesday with a lack of major developments and Wall Street was broadly unchanged for the second day running.
The dollar did drift lower in early Europe on Thursday.
The latest PMI business confidence data will be released on Friday with data for the Euro-Zone, US and UK. The latest data on growth, Inflation pressures and relative outlook between countries will be a key element in the data. All manufacturing releases are expected to remain in contraction territory.
The Euro lost ground after Wednesday’s European open with weaker equities sapping support. EUR/USD did find support above Tuesday’s lows which helped underpin sentiment. The dollar retreated from intra-day highs and EUR/USD rallied to 1.0955. EUR/USD edged higher to around 1.0970 on Thursday.
Higher US yields undermined overall yen support. USD/JPY did slide rapidly from highs above 135.00 but recovered later in the day. USD/JPY traded just above 134.50 on Thursday from 134.80 highs.
The Swiss franc was unable to draw support from hawkish National Bank rhetoric. EUR/CHF settled around 0.9835 with USD/CHF around 0.8955.
Following the inflation data, Sterling was boosted by expectations that the Bank of England would have to be hawkish. GBP/USD settled just below 1.2450 from 1.2475 highs.
Commodity currencies were held in relatively narrow ranges. AUD/USD dipped to 0.6690 before a recovery to 0.6720 on Thursday. The Canadian dollar lost ground as oil prices moved lower. USD/CAD rallied to 1-week highs around 1.3470 before a retreat to 1.3455. The New Zealand dollar dipped after weaker than expected inflation data with NZD/USD sliding to near 0.6150 before a recovery to 0.6170.