ECB to hike in July?

The single currency received a hearty boost through yesterday, as ECB governing council member, Martins Kazaks, suggested that the ECB may raise interest rates as soon as July, given the ‘significant’ inflation risks for the region. He went on to say that there will probably be the need for further tightening from the ECB later in the year. With markets still hovering on just over two 25 bps hikes from the ECB through 2022 (60bps total), the ECB seem to be playing a game of catch-up with market expectations, after that somewhat dovish ECB meeting last week.

What about the EUR?

As we said at the top, the single currency reacted in a highly positive fashion to the comments. In the case of EUR/USD, this move was further boosted by a slew of profit-taking in long dollar positions. Having traded as low as 1.0780 yesterday morning, the pair then rallied nearly 100 pips back over 1.0850. For this move to continue, Christine Lagarde will need to sing from a similar song sheet when she speaks today at the IMF debate on the Global Economy. Interestingly enough, Fed Chair Jerome Powell will be speaking at the same debate. We can probably expect a reference to a 50bps rate hike, as this will be the last time that Powell will have the opportunity to wax lyrical before the Fed’s self-imposed quiet period ahead of the May FOMC meeting.

The dollar can go down too

Aside from those notable EUR/USD gains, the dollar struggled across the board through yesterday. USD/JPY slipped from a 129.40 top to back under 127.50 at one point. Whilst the move was only a partial unwind of the rally from the previous day, when USD/JPY moved from just under 127.00 to 129.40, the fear factor certainly looked to be a mitigating driver, as whispers of more upcoming verbal intervention may well have been behind much of the decline. On that note, the speed of Tuesday’s rally will certainly have drawn the attention of Japanese officialdom. Other factors, such as the close proximity to 130.00, a big psychological level if nothing else, will have played their part as the market became somewhat over-extended.

Big jump for Canadian inflation

The latest Canadian inflation figures also caught the eye yesterday, at 6.7% (YoY) and with the Core (YoY) print surging by 5.5%, way ahead of the market consensus at 4.2%. At 1%, the monthly core reading was double expectations. That all amounted to a 31 year high for Canadian inflation. Whilst these figures represent March, and thus will not have been influenced in any way by the 50bps rate hike last week, they will underpin a growing market consensus of a more aggressive hiking cycle from the BoC. USD/CAD slipped from a 1.2624 top to under 1.2475, which represents a two-week low. It is always fascinating how a 50bps rate hike can’t move a currency anywhere near as much as the prospect of a 50bps rate hike can.

New Zealand inflation misses estimates

The latest New Zealand inflation figures came in a touch under estimates overnight, however, with the YoY/Q1 print at 6.9%, versus 7.1% expected. That still represents a big jump from the previous figure of 5.9%. Whilst the kiwi slipped on the news, with NZD/USD moving back under 0.6800, the overall direction of inflation is likely to ensure that the RBNZ maintain their tightening bias. 

Sterling recovers too

GBP/USD managed a partial recovery, moving back over 1.3050, having failed to maintain a move below 1.3000 at the fifth daily attempt in less than two weeks. Much the same as the single currency, the pound is likely to take its short-term directional bias from today’s IMF debate, when the BoE’s Bailey will also be present and speaking. The feeling in markets has been that the BoE will continue with a much more dovish tilt to their language, as they pause for thought, given the huge increase in the UK’s cost of living, combined with the impact of those three rate hikes already. Sensible thinking indeed. GBP/EUR was driven a smidgeon lower, but crucially remains above 1.2000.

What else do we need to know today?

Aside from the plethora of ‘A’ list speakers at the IMF debate, Euro-Area HICP Inflation is due, and the weekly U.S initial jobless claims. If you stay up late enough, you may catch the AUD S&P PMI readings, and Japanese CPI.