“With perfect hindsight, it would have been better for us to have raised rates sooner.” – Jay Powell 13 May 2022
That quote will ring through markets again and again in 2022 – the inability to see that inflation was moving from ‘transitory’ to ‘structural’ in 2021 will mean speculation about the size and speed of rate rises to regain control will dominate trading. And this will mean overshooting, hot trading. The April CPI read suggests the US still hasn’t fully peak, headline inflation at 8.3 per cent
year on year is just below the 40 year read from March. Core inflation at 6.2 per cent year on year is also just shy of the March read.
Yes, inflation is pulling back slightly it’s the underlying breathe of inflation across the sectors that is concerning suggesting that inflation will be stubborn and will regard some manhandling to bring down. All this is adding to the markets want to speculate that a 75-basis point (bps) is not off the cards and that the Fed will have to front load its rate hiking program. All this is enough to
keep the USD as king in the current environment. EUR/USD is back below $1.055 and is showing signs it wants to retest $1.05 – the caveat will be the ECB and if it too moves to a more hawkish footing. Once more sterling is being pounded it remains the weakest currency in the G10, GBP/USD is now $1.224 having been above $1.24 this is now a 12 cent fall in a matter of weeks. USD/JPY jumped back above ¥130.00 to ¥130.81 on the inflation read and reminds at a 20 year high.