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The US Dollar Index continues to plunge into the weekly close, with the buck set for its biggest weekly decline against counterpart currencies in over 10 years.
Today, the losses are continuing into the session close, with the going rate at three-month lows of 107.00. I thought that once the 109.00 level was broken then the free-for-all would start.
Equity markets are also having another solid day after yesterday’s huge gain. The spectacular run on the Nasdaq continues with a near 7 percent weeks gain.
This of course is all happening after inflation fell to 7.7%, a good deal more than the 8% forecast, with core inflation, which excludes food and energy, falling to 6.3% against 6.5% expectations.
It’s still far above the Federal Reserve’s inflation target of 2%, however, markets reacted with a huge relief rally on riskier equities products and a sharp selloff of the US dollar.
We might actually be seeing a payoff for the US Federal Reserve’s hardline fiscal tightening game plan. Following the softer inflation figures, three Fed speakers put their weight behind a looser economics policy going forward.
The latest notes out of BofA says that we are now in the transition period from the 2022 bear narrative, that was encapsulated by “inflation shock, rates shock, recession shock”, and moving on to the 2023 bull narrative, which is “peak CPI, peak Fed, peak yields, and peak US dollar”.
Spot gold added around 3 percent to $1,760, marking a 11-week high, while the yellow metal is headed for its best week in eight months. On a month-on month basis, gold was up almost 5 percent.
Silver is also moving towards the $22.00 level with some venom. The weekly trend indicates a gain of more than 4 percent for silver while it gained more than 13 percent monthly.
Today’s UK gross domestic product data showed a quarterly contraction of -0.2%, which was quite a bit less than the -0.5% expected and as such. According to the NIESR, the BOE will need to raise bank rate to 4.75% to tame inflation Adds that bringing inflation back to 2% target is something that is likely to take three years.
The think tank says that the BOE will have to keep with rate hikes until probably about 4.75% in order to bring inflation back down to its 2% target. Even so, such a likelihood may take up to three years’ time to be achieved.
Markets are pricing in that the BOE will keep the aggression to raise the bank rate until 5.25% before last week’s policy decision. Since then, the central bank has produced a more dovish stance, arguing that markets have “priced in too much”.
Sterling is approaching the 1.1800 level on the weekly close, as the British pound currency traders shrug-off the bad GDP print and fixates on US dollar weakness.
