UK inflation surges to 29-year high.

Cleveland Fed President Mester stated that front loading Fed rate hikes is appealing and that raising rates to around 2.5% is appropriate this year with further rate hikes next year. She added that she thinks a 50 basis-point increase is likely at some meetings.

San Francisco head Daly stated that policy-supported demand and fragile supply chains was a recipe for inflation which is too high. She added that it is time to get back to a neutral monetary policy and looking though the Fed will need to go over neutral.

The hawkish Fed policy contributed to further upward pressure on US and global bond yields which also remained a key driver in currency markets.

The US 10-year yield moved above 2.40% and the highest level since May 2019 before a slight correction.

The increase in global yields and expectations of a very dovish Bank of Japan monetary policy continued to undermine the Japanese currency with USD/JPY surging to fresh 6-year highs around 121.40.

The Japanese finance ministry warned that it was monitoring moves in exchange rates closely, increasing the potential for the Bank of Japan to be ordered to intervene in the market with Japan uneasy over the impact of a surge in cost of energy imports.

The evidence suggests that the overall Russian advance in Ukraine has stalled with Ukraine forces regaining ground in some areas, but the sustained attack on Mariupol has continued and defeat for Ukraine here would be strategically important for Russia.

There were further concerns over a prolonged conflict which would have important implications for global energy and food prices.

The latest UK inflation data recorded an increase in the headline rate to 6.2% from 5.5% which was above market expectations of 5.9% and the highest reading for 29 years.

The underlying rate increased to 4.3% from 4.0% and slightly above expectations of 4.2%.

UK Chancellor Sunak will present his Spring Statement to the House of Commons on Wednesday.

There are strong expectations that he will announce a support package, primarily aimed at cushioning consumers from the impact of a surge in energy costs. There is also the potential for a shift in corporate taxation, especially over the medium term.

The dollar continued to draw underlying support from expectations of more aggressive Fed tightening. The Euro was, however, resilient with expectations that the ECB would also have to adopt a more hawkish policy. EUR/USD moved back above the 1.1000 level on short covering with a peak just below 1.1050.

Higher US bond yields continued to undermine the yen. The Japanese Finance Ministry warned that it was monitoring exchange rates closely. USD/JPY still posted fresh 6-year highs around 121.40 before a limited correction.

Sterling secured strong gains with a fresh increase in Bank of England rate expectations and expectations of fiscal stimulus. GBP/USD strengthened to a peak at 1.3300 before a correction to near 1.3265. GBP/EUR rallied to near 1.2050 before stabilising.

AUD/USD secured a strong advance to 4-month highs around 0.7475 as commodity prices remained strong before a correction to near 0.7450. USD/CAD edged lower to 1.2580, although the currency under-performed on the crosses.

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