Inflation concerns in Fed minutes.
The German IFO index edged higher to 91.1 for February from a revised 90.1 the previous month, but slightly below consensus forecasts of 91.4. Although there was a significant increase in the expectations index, this was offset by a small decline in the current conditions index.
The IFO stated that Germany will not escape recession, but that the downturn is likely to be mild. There was a further net easing of supply bottlenecks for the month while a smaller proportion of companies want to increase prices.
Federal Reserve minutes stated that several participants advocated rising interest rates by 50 basis points at the policy meeting, although almost all members eventually agreed that a 25 basis-point hike was appropriate.
As far as inflation is concerned, members stated that inflation had eased, but they needed to see more progress and that the tight labour market would contribute to upward pressure on inflation.
Participants considered that risks to the economic outlook were skewed to the downside and some considered that the risk of recession in 2023 had increased.
US Treasuries managed to avoid further selling on Wednesday and the 10-year yield traded just above 3.90%.
Risk appetite remained fragile and the US dollar secured net gains, but equity futures did regain some ground on Thursday which curbed further US currency support.
Oil prices came under pressure on Wednesday amid fresh doubts over demand trends and elevated inventories. Global benchmarks dipped over 3% before attempting to stabilise.
Bank of Japan Governor nominee is due to testify to parliament on Friday with confirmation hearings. His comments on monetary policy will be watched very closely with scope for renewed yen volatility.
The Euro overall drifted lower with no support from the IFO data and rallies faded quickly. The dollar was resilient despite a slight decline in bond yields on the day. Risk conditions remained an important focus during the day. EUR/USD dipped to test the 1.0600 area before edging higher to 1.0620 on Thursday.
The yen was unable to hold gains. USD/JPY found support below 134.50 and advanced to 135.00 after the Fed minutes. USD/JPY settled around 134.80 with Japanese markets closed for a holiday.
The Swiss franc was unable to make headway. EUR/CHF settled below 0.9900 around 0.9875 with USD/CHF strengthening to above 0.9300 before fading.
Sterling was unable to secure renewed support with a March Bank of England rate hikes priced in. GBP/USD failed to hold 1.2100 and drifted to below 1.2050 before settling around 1.2065.
Commodity currencies gradually lost ground amid a firm US dollar and fragile equities. AUD/USD retreated to near 0.6800 before a tentative recovery to 0.6825. USD/CAD edged higher to 1.3550 before settling around 1.3525.
|Prelim GDP q/q