Dollar Struggles after CPI, Sterling Supported by Job Data

Dollar is rather indecisive in early US session. US consumer inflation slowed less than expected in January, support Fed to continue tightening, probably for longer. However, positive risk sentiment is offsetting the boost to the greenback. Sterling, on the hand, was lifted by solid job data while FTSE hitting new record high. Elsewhere, Euro Swiss Franc and Aussie are on the firmer side. Yen, Canadian and Kiwi are on the weaker side.

Technically, GBP/CAD’s break of 4 hour 55 EMA is a positive sign. Immediate focus is now on 1.6338 resistance. Decisive break there will argue that whole corrective pattern from 1.6846 has completed with three waves to 1.6075. Stronger rally would then be seen back to 1.6690/6846 resistance. Tomorrow’s UK CPI data could be the trigger.

In Europe, at the time of writing, FTSE is up 0.24%. DAX is up 0.26%. CAC is up 0.36%. Germany 10-year yield is up 0.017 at 2.388. Earlier in Asia, Nikkei rose 0.64%. Hong Kong HSI dropped -0.24%. China Shanghai SSE rose 0.28%. Singapore Strait Times dropped -0.20%. Japan 10-year JGB yield closed flat at 0.504.

US CPI slowed to 6.4% yoy in Jan, Core CPI down to 5.6% yoy

US CPI rose 0.5% mom in January while CPI core rose 0.4% mom. Both matched expectations. Food index rose 0.5% mom while energy index rose 2.0% mom.

Over the last 12 months, CPI slowed from 6.5% yoy to 6.4% yoy, above expectation of 6.2% yoy. That’s nonetheless the lowest reading since October 2021. CPI core slowed from 5.7% yoy to 5.6% yoy, above expectation of 5.5% yoy, but was the lowest since December 2021. Energy index rose 8.7% yoy while food index rose 10.1% yoy.

ECB Makhlouf: I’m open to acting forcefully to bring inflation down

ECB Governing Council member Gabriel Makhlouf told WSJ, “I’m open to acting forcefully to get inflation down to our target.” He noted that interest rate could rise to above 3.5% and stay there.

Regarding speculations that ECB would cut interest this year, Makhlouf said, “I think that really is going too far… We’ll reach a point where we’re going to, then plateau.”

“I see the ECB as putting up interest rates after the March meeting…Even though inflation is coming down it’s still way above our target,” Makhlouf added.

UK payrolled employees rose 102k in Jan, unemployment rate at 3.7% in Dec

In January, UK payrolled employees rose 0.3% mom or 102k. Comparing with the same month a year ago, payrolled employees rose 2.6% yoy or 768k. Median monthly pay rose 6.8% yoy. Claimant count dropped -12.9k, versus expectation of 9k rise.

In the three months to December, unemployment rate came in at 3.7%, 0.1% higher than the three-month period. Employment rate was at 75.6%, 0.2% higher than the previous three-month period. Economic inactivity rate was at 21.4%, 0.3% lower than the previous three-month period. Average earnings excluding bonus was up 6.7% 3moy, above expectation of 6.5%. Average earnings including bonus was up 5.9% 3moy, below expectation of 6.2%.

Japan GDP grew 0.2% in Q4 only, missed expectations

Japan GDP grew 0.2% qoq in Q4, below expectation of 0.5% qoq. In annualized term, GDP rose 0.6%, below expectation of 2.0%. GDP deflator rose 1.1% yoy, matched expectations. For the full year of 2022, GDP expanded 1.1%, slowed from 2021’s 2.1%.

Economy Minister Shigeyuki Goto said after the release, “Rising inflation and the global slowdown are risks… But corporate spending appetite hasn’t cooled … we’re not too pessimistic about the outlook.”

Finance Minister Shunichi Suzuki said, “With global monetary tightening continuing, the slowdown in overseas economies could still drag on Japan’s economy as well. We also need to pay attention to the impact from inflation, supply constraints, volatility in financial markets and the spread of Covid cases in China.”

Separately, it’s confirmed that the government nominated Kazuo Ueda as the next BoJ Governor, when Haruhiko Kuroda’s term ends on April 8. Ueda is a 71-year-old former BoJ board member and an academic at Kyoritsu Women’s University.

Australia consumer sentiment dropped back to 78.5, pressures bearing down on consumer becoming intense

Australia Westpac-Melbourne Institute Consumer Sentiment Index fell -6.9%mom from 84.3 to 78.5 in February. The reading was already below the trough of 79.0 as seen in the global financial crisis, but above the 75.6 low in April 2020 when the pandemic first hit.

Westpac noted: “Cost of living pressures and interest rate rises continue to weigh heavily. Hopes of some easing in both have been dashed by the strong December quarter CPI and the RBA’s resumption of its interest rate tightening cycle.”

Regarding RBA policy, Westpac expects another 25bps hike to 3.60% on March 7, a pause in April, and then a final 35bps hike in May to 3.85%.

It added, “The consumer sentiment survey continues to give a very clear warning that the pressures bearing down on the consumer are becoming intense. While spending has held up relatively well to date, we expect an abrupt slowdown to show through in coming months.”

Australia NAB business confidence rose to 6, conditions rose to 18

Australia NAB Business Confidence rose further from 0 to 6 in January. Business Conditions also improved from 13 to 18. Looking at some details, trading conditions rose from 20 to 28. Profitability conditions rose from 13 to 17. Employment conditions rose from 9 to 10.

NAB Chief Economist Alan Oster: “Business conditions picked back up in January after three months of softening in late 2022. There were strong increases in conditions for ‘upstream’ sectors such as wholesale, construction and manufacturing, and importantly, conditions in the more consumer-facing industries remained very strong.”

“Confidence dipped into negative territory late in 2022 but is now back around the average after rebounding over the past two months. The improvement in confidence suggest firms have a more optimistic outlook as concerns about global growth prospects ease, while strong conditions are also providing evidence that the economy is more resilient than previously expected.”

RBNZ survey: OCR expected to rise to 5% by year end

According to RBNZ Survey of Expectations (Business), one-year inflation expectations rose slightly from 5.08% to 5.11% in February quarter. The reading was similar to value from the 1990 survey when actual CPI was 7.60%.

On the other hand, two-year inflation expected dropped further from 3.62% to 3.30%. The spread also narrowed, with no respondent answering below 2.00% or above 6.00%.

Official Cash Rate (OCR) expectations increased notably by 74 basis points from 4.25% to 4.89% by the end of this quarter. OCR is expected rise further to 5.00% by the end of the year, up from 4.67%.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2064; (P) 1.2108; (R1) 1.2184; More…

GBP/USD’s rebound from 1.1960 resumed by breaking 1.2192 minor resistance and intraday bias is back on the upside. The development revived the case that corrective pattern from 1.2445 has already completed at 1.1960. Further rise should be seen to retest 1.2445/6 next. On the downside, however, below 1.2123 will mix up the outlook again and turn intraday bias neutral.

In the bigger picture, rise from 1.0351 medium term bottom is at least correcting whole down trend from 1.4248 (2021 high). Further rise is expected as long as 1.1644 resistance turned support holds. Next target is 61.8% retracement of 1.4248 to 1.0351 at 1.2759. Sustained break there will pave the way back to 1.4248.

Economic Indicators Update