Overnight Headlines

*Fed policymakers lean into bigger rate hikes to fight inflation

*Global bond losses deepen to 11% from 2021 high, most on record

*Improved risk sentiment and high commodity prices help aussie, hurt yen

*Gold steadies as Ukraine worries counter bets on Fed rate hikes

*UK CPI hotter than expected at 6.2% y/y vs 6.0%, previous 5.5%

US equities recovered with the Nasdaq rising +1.95%, the S&P500 +1.13% and the Dow +0.74%. There was peculiar sector performance with financials and consumer discretionary leading the way. Asian markets are continuing their rebound hitting three-week highs. US futures are signalling a modest positive open.

USD closed marginally softer on the day after trying to move higher above 99. EUR dropped below 1.10 before finding some bids to close at 1.1027. GBP broke higher away from 1.3160 and is pushing on this morning near to 1.33. USD/JPY has hit fresh six-year highs above 121 today. USD/CAD has fallen below support at 1.26, trading around long-term trendline support. AUD pushed above 0.7450.

Market Thoughts – Positive risk sentiment amid hawkish Fed chatter

It seems that investors are looking past Fed Chair Powell’s hawkish comments, for now at least. Instead, the focus is on a strong economy capable of achieving a soft landing. And Fed officials are keen to talk about front-loading interest rate hikes in this environment.

Even doves like Daly, San Francisco Fed President, are calling for tighter policy and not ruling out a bigger 50bp hike at some point soon. Risks are now skewed to a couple of larger rate moves. The Fed is behind the curve with still rising inflation. But we note the very flat bond yield curve signals a recession one to two years further out.

Chart of the Day – GBP/USD breaks higher out of the range

GBP has been outperforming this week, with the UK Chancellors’ spring statement due today. The UK’s improved fiscal position has given Rishi Sunak an opportunity to support the domestic economy. This may provide a little more room for the BoE to hike rates. The bank’s tightening expectations are also proving fairly resilient, even in the face of last week’s dovish hike. The beat in today’s CPI data will be noted by policymakers, with fears of 9% inflation in the coming months.

Cable has chopped around December’s support at 1.3160 in recent sessions. But the move yesterday has pushed the pound out of the range. Resistance is 1.3275 and 1.33. Support remains at 1.3160 and then 1.3110/00.