The USD rose to its strongest level in a week after producer price inflation rose more than expected, illustrating that costs are rising. Add this to the rise in consumer price inflation earlier this year, and market pricing on rate cuts from the Fed has reduced back down to only 75bps worth of costs across the year. Initial jobless claims came in lower as well. Retail sales were disappointing, demonstrating that spending momentum is slowing, suggesting we could be in for slower growth in the US.
*Daily move - against G10 rates at 7:30am, 15.03.24
** Indicative rates - interbank rates at 7:30am, 15.03.24
The combination of yesterday's US numbers adds to the argument that perhaps the Fed will be in no rush to cut interest rates anytime soon. Nomura bank now forecasts only two rate cuts from the Fed this year, one in July, and another cut in December; this is less than what markets are pricing. A strong performance from US today to mark a good week, or the currency suggests that we could see further strength going into next week's Fed meeting and the Dot Plot. Today sees the one-year expectations for UK inflation, which leads us nicely onto next week's CPI numbers from the UK as well as the BoE meeting. UK numbers this week have disappointed, and anything to suggest inflation is slowing could erode the recent optimism on GBP.
Next week’s BoJ meeting is building up to be a live one, after annual wage hikes rose to 5.28% vs 3.8% a year ago. GBPJPY has been declining in recent weeks, and further declines could be seen should the BoJ elect to lift interest rates out of negative territory.
The last two months of inflation data from the US is starting to imply that the Fed’s job isn’t quite done yet, and this has been reflected in the money markets, with the amount of rate cuts expected this year reducing 95bps at the start of the week to 75bps (Fed’s current projections). USD has gained as a result this week, and should next week's dot plot show any hesitancy in the amount of rate cuts, I.e. is perceived hawkish, then more gains on the greenback could be seen.
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