Geo-political tensions simmer.

The second estimate for fourth-quarter of 2022 GDP growth was revised slightly lower to 2.7% from the flash reading of 2.9% with the estimate of consumer spending growth revised down to 1.4% from 2.3%.

There was, however, an upward revision to the GDP prices index to 3.9% from 3.5% which helped maintain unease over underlying inflation trends.

US initial jobless claims edged lower to 192,000 in the latest week from 195,000 previously and below consensus forecasts of 200,000 while continuing claims declined to 1.65mn from 1.69mn.

Chinese economic hopes tended to be offset by geo-political concerns. The US stated that it would expand its troop presence in Taiwan in order to bolster a training programme amid an increased Chinese threat.

There was also a warning from NATO against any Chinese move to supply weapons to Russia.

The dollar posted 6-weeek highs on Thursday with support from hawkish Fed expectations and weaker equities. There was a marginal retreat on Friday, but it held a firm overall tone.

Bank of England MPC member Mann stated that it was too soon to say whether the inflation risks posed by last year’s surge in inflation had eased and that there was no evidence yet in the data that a preponderance of turning points had been seen.

In this context, she considers that the central bank should continue to increase interest rates. In particular, she was concerned over sticky inflation expectations and the risk that the economy would suffer the worst of both worlds with persistent high inflation and weaker activity.

In testimony to parliament, Bank of Japan Governor nominee Ueda stated that the central bank will need to move towards policy normalisation if trend inflation increases, but the bank will need to find ways to maintain yield control if this is not the case.

He added that the bank is monitoring measure to ease distortions introduced in December and suggested there would be no abrupt policy move.

The latest US PCE prices index will be released on Friday and a stronger than expected reading would reinforce concerns over a more aggressive Fed policy stance.

Consensus forecasts are for the core year-on-year rate to edge lower to 4.3% from 4.4%. Stronger than expected data would reinforce fears over more aggressive Fed tightening.

The Euro was unable to make any headway in Europe on Thursday and dipped to test support below 1.0600. There was further dollar buying after the US data releases. The US currency also secured defensive support when equities moved lower. EUR/USD dipped to fresh 6-week lows just below 1.0580 before attempting to rally as equities recovered and settled just below 1.0600 on Friday.

The yen lost ground after the US data. USD/JPY peaked at 135.30 before a retreat to 134.50 as US yields edged lower. There was choppy yen trading surrounding Ueda’s comments. USD/JPY settled around 134.60 from lows near 134.00The Swiss franc dipped lower on expectations of higher global interest rates. EUR/CHF settled just below 0.9900 with 6-week USD/CHF highs at 0.9350.

Sterling failed to draw sustained support from Mann’s hawkish rhetoric. Weaker global equities sapped potential support.  GBP/USD dipped to test support below 1.2000.

Commodity currencies were dominated by US dollar moves and equities. AUD/USD dipped below 0.6800 before rallying tentatively to 0.6805. USD/CAD peaked just above 1.3580 before fading to around 1.3550.

Economic Calendar

13:30Core PCE Price Index m/m0.4%0.3%

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.