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DXY appreciated slightly to 103.27, while its 50dma has finally fallen below the 200dma. US Fed Chair Powell's speech at the Symposium on Central Bank Independence in Stockholm did not hint on whether a 50bps or 25bps hike is more likely, but he underscored that the Fed should not broaden its policy scope to address social or climate issues. Powell also mentioned that issues in the US Treasury market are preferably addressed by structural reforms, and not the provision of more liquidity. This could signify a high hurdle for the Fed to pause QT on Treasury market strains. Fed Governor Bowman also did not hint on rate hikes, but she expects that rates should remain at restrictive levels for some time in contrast to market pricing of a cut.
EUR/USD is consolidating above 1.07, marking its highest since June 2022. In Lisbon, ECB's Centeno said that inflation is still too high and that there is no alternative to raising rates. ECB's Schnabel also made similar comments on inflation in Stockholm overnight. ECB's Holzmann, Villeroy and Rehn are all slated to speak later today. They could flag the same concerns on inflation, underpinning a continued hawkish bias for the ECB and support for the EUR.
The RMB has eased after a surge since the start of the year with Chinese equities, but USD/CNH still holds fast below 6.80. China's aggregate financing for Dec came in weaker than expected at CNY 1310bn, but this is by no means indicative of a shortfall in new loans, which rose at a faster rate of CNY 1400bn. Bond financing had been weak, but there is also recently more policy support via state guarantees for issuance by private developers. We think financing conditions are likely to improve onshore, which should keep RMB sentiment firm.
Australia's Nov CPI showed headline and trimmed mean inflation climbing more than expected to 7.4% (y/y) and 5.6% respectively, while retail sales also outperformed with a 1.4% (m/m) gain. Job vacancies however showed a surprise decline, suggesting that labour demand is slowing. Still, the tone of the data is strong enough for another RBA rate hike on 7 Feb, and this should keep AUD/USD buoyant.
Quote of the day
“You can put wings on a pig, but you don’t make it an eagle.”
William J. Clinton
11 January in history
East Pakistan renamed itself Bangladesh in 1972.
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