Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
US yields surge on hot inflation print
The 10-year yield jumped over 10bps following headline CPI rising 0.5% (vs 0.3% expected), pushing the annual inflation rate to 3%. Core inflation accelerated 0.4%, higher than forecast (0.3%).
Fed Chair Powell told Congress that while substantial progress has been made on inflation, policy needs to remain restrictive, though he cautioned against overreacting to individual data points.
The dollar was relatively flat as markets remained cautious ahead of potential reciprocal tariffs from the Trump administration.
The Antipodeans showed relative resilience (AUD, NZD weakened 0.2% each) despite broader trade concerns, with New Zealand awaiting key Q1 inflation expectations data due 1:00pm AEDT Thursday.
Markets remain priced for a 50bp RBNZ cut in February following recent soft labor and growth data.
JPY declined against major crosses as higher US yields triggered position squeezes, with USDJPY testing 155.00 before settling at 154.40.
In Asia, the USD/JPY gained 1.25%, USD/SGD and USD/CNH were relatively flat.
Sterling capped as economy struggles
Today, the UK Monthly GDP for December will be made public. Recent months have seen sluggish economic growth, according to survey data from the PMIs, BCC, and CBI.
The GDP has decreased more months than it has increased throughout the last eight months (April through November included).
The GBP/USD rebound is still contained to the favored cluster of resistance levels between 1.2486 and 1.2659. We believe that resistance will limit the market, even if the market may see additional consolidation following the Sep-Jan trend.
Peso steady as BSP cuts again
Given the remaining benign inflation forecast, which is the monetary board’s primary policy consideration despite a more hawkish Fed, we anticipate that the Bangko Sentral ng Pilipinas (BSP) will lower its policy rate by an additional 25 basis points to 5.50% today.
Core inflation decreased to 2.6% from 2.8% in January, indicating weak demand-side circumstances, but headline CPI inflation remained steady at 2.9% year over year, well within the BSP’s 2-4% target.
The BSP should be able to keep loosening its monetary policy in order to boost domestic demand if inflation stays steady.
We also anticipate that officials’ remarks and policy statements will be as dovish as they were at the last meeting, with the BSP stating that inflation expectations are still well-anchored and that the BSP has room to continue its easing cycle in a gradual way.
We continue to have a slightly negative view on the peso.
The BSP has enough reserves to handle modest shortfalls, but recent CA deficits have surpassed sustainable levels.
Aussie retreats
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 9 – 15 February
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
