Dollar on the front foot

The dollar is on the front foot after comments by Fed Chair, Jerome Powell, on the outlook for US interest rates, strengthening to around $1.0550 against the euro and to just shy of $1.18 against sterling. This in turn leaves the euro marginally firmer against the pound at just over 89p

In government bond markets, 2-year yields in the US jumped by almost 15bps to over 5% (for the first times since 2007) on the back of Powell’s comments, while 10-year yields ticked up to almost 4%. Meanwhile, German and UK 10-year yields both closed lower yesterday at about 2.70% and 3.82% respectively

In his testimony to Congress on the outlook for the US economy and monetary policy, Powell reiterated that the “ultimate level of interest rates is likely to be higher than previously anticipated”, and added that “if the totality of the (economic) data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes”. The latter comment has prompted the market to go a long way to pricing in a 50bps rate hike at the Fed meeting later this month

The ECB says consumer expectations for inflation in the Euro area three years ahead receded “significantly” according to its latest survey, falling to 2.5% from 3.0% in its previous (December) survey. This, though, is unlikely to deter the ECB from raising interest rates by 50bps as intended at next week’s meeting

Economic data due today include another estimate of Q4 GDP in the Euro area as well as the ADP employment report and job openings in the US, while the Fed also releases its latest Beige Book