Markets closed out yet another strong week of trading, boosted by the better than expected inflation data, confirming precipitous falls in the latest US CPI number. US headline inflation plunged from 7.1% to 6.5%, increasing the pressure on the Federal Reserve to halt the interest rate increases, or at least pause the incremental rises. The trading year has been a cradle of hope and positive sentiment, based on the premise that ‘peak inflation’ has come and gone. US and European banks are increasing provisions for doubtful debt, confirming the 2023 recession, but hopes are rising for a shallow and brief downturn. The Ukraine war rages on and the China re-opening, will once again put upward pressure on energy prices, but a mild Northern Hemisphere winter will balance the demand. The positive economic sentiment has seen US Bond Yields crater and the US Dollar has retreated. The EUR trades well above 1.0800, while the GBP looks to hold above 1.2200.
The flagging reserve has allowed the commodity currencies to regain some upward momentum, with the AUD approaching 0.7000, while the NZD looks to regain 0.6400. A keen eye will be kept on the Bank of Japan, which will announce their latest prognosis of monetary policy. Recent signs of inflation is beginning to register and a subtle shift in policy nuances, will be of no great surprise. The Yen has been regaining ground, moving below 128.00, hinting at some slight shift in policy at the margins? The US celebrates the MLK Holiday Monday , so expect a slow start to the week.