Written by Steven Dooley and Shier Lee Lim
US inflation stays hot, but markets unfazed
The US dollar was stronger again overnight after the US’s February inflation report was hotter than expected but the greenback’s gains were only moderate as markets stayed mostly upbeat.
Despite the hotter inflation numbers, markets remain more focused on gains in sharemarkets, with the Dow Jones index up another 0.6% overnight and the tech-focused Nasdaq up 1.5%.
US headline inflation was reported at 3.2% in annual terms – above the 3.1% forecast – while core was reported at 3.8% versus the 3.7% forecast.
The USD index settled up only 0.1% after some initial volatility drove a short-term spike.
Most key FX markets remained broadly steady although the USD/JPY notably gained 0.5%.
Euro nears highs ahead of production numbers
We have Eurozone industrial production due today.
We anticipate an increase in industrial production of 0.3% month over month based on 56% of the national level data.
Over the past month, the euro has made a small recovery as the dollar has generally declined due to falling US bond yields. The EUR/USD touched a two-month high last week before reversing.
Korean unemployment due
Also today, Korea unemployment rate is due. In February, we anticipate that the unemployment rate will stay at 3.0% seasonally adjusted.
The manufacturing sector probably kept adding jobs as export growth picked up; in line with the rise in outbound travel, we also anticipate job growth in the transportation and tourist sectors. However, given the impact of the housing market slump and declining domestic demand, we anticipate employment losses in the hotel and restaurant and real estate industries.
As a result, a recovery in the manufacturing sector ought to result in the creation of even more employment, but we anticipate that the poor domestic demand will continue to put pressure on labour market conditions.
We remain moderately bullish on the Korean won. Why? (a) ongoing recovery in the electronic exports; and (b) ongoing equity inflows especially since foreign ownership remains low.
USD higher after CPI
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 11 – 16 March
All times AEDT
*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.
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