Market inflation cools slightly, the central bank may raise interest rates again

[Inflation in the UK has cooled further, and the decline in the pound may expand]

Sterling faces further losses after upcoming data showed UK inflation cooling further ahead of the next Bank of England policy meeting. UK inflation slowed more than expected in January, suggesting the Bank of England may pause its rate hike cycle in March. Markets fully priced in a 25 basis point hike in March following the release of UK jobs data on Tuesday, but that has now fallen to 80%. Should inflation data slow further in February, there would be "plenty of room" for interest rate expectations to fall further, which would weigh on sterling.

[The market expects the Bank of England to raise interest rates by 68 basis before September]

Investors are pricing in a 68 basis point rate hike by the Bank of England by September. Effectively, this is in line with two recent hikes and keeping the bank rate at 4.5% before cutting it again. Markets quickly trimmed expectations for cumulative remaining rate hikes from the BoE to 54 basis points on the back of the inflation data, down sharply from the 68 basis points expected the day before. Therefore, if the central bank really wants to stop raising interest rates in March, or even keep interest rates unchanged, the market needs to further reassess. Near-term correlations in financial markets remain intact, with further cuts in bank rate expectations weighing on UK bond yields, which would also weigh on sterling.

[The euro may fall further due to excessive interest rate hike bets]

Mitsubishi UFJ said that the euro may continue to weaken given the ECB members' comments on the risk of excessive tightening, market expectations for the ECB to raise interest rates may be too high. "Assuming the ECB raises rates by 50 basis points in March, the market is pricing in a further tightening of around 70 basis points, which is looking increasingly doubtful," MUFG analyst Derek Halpenny said in a note. "In addition, with rising US interest rate expectations, the euro will face further downward pressure against the dollar in the near term. Eurozone cyclical indicators have started to underperform, suggesting that the good news related to lower natural gas prices is now fully priced in, which could also weigh on the euro at current levels.

【US government deploys new federal aid in East Palestine, Ohio】

The U.S. government deployed additional federal assistance to the town of East Palestine, Ohio, in response to the Ohio train derailment, according to a White House statement. The White House said the U.S. Department of Health and Human Services and the Centers for Disease Control and Prevention are deploying a team of medical staff and toxicologists who will arrive at the scene on the 18th to conduct public health testing and evaluation. The White House said that after the derailment, the US Environmental Protection Agency, the Department of Transportation, the National Transportation Safety Board, and the Federal Emergency Management Agency all dispatched teams to the scene of the accident.

[Good US economic data supports the dollar]

The U.S. Bureau of Labor Statistics released a report on Tuesday that measured by the Consumer Price Index (CPI), the annual rate of inflation in the U.S. fell to 6.4% in January from 6.5% in December last year, higher than market expectations of 6.2%. Month-on-month gains in U.S. consumer prices accelerated in January and Americans continued to be burdened by higher rent and food costs, suggesting the Fed is far from pausing on rate hikes. While year-on-year growth has slowed, the continued gradual slowdown in inflation, nonetheless, is likely to keep the Fed on a dovish path of rate hikes. Stubborn inflation and continued tightness in the labor market have led some economists to expect the Fed to continue raising interest rates over the summer.

[The market expects the Fed to increase interest rate hikes]

Given stronger economic growth and firmer inflation data, Goldman Sachs raised its Fed rate hike forecast by another 25 basis points. It now expects the Fed to raise interest rates by 25 basis points each in March, May and June. rose to 5.25-5.5%. Bill Adams, chief economist at Comerica Bank, sees the Fed's most likely path forward as raising rates by 25 basis points in each of its next three policy decisions, in March, May and June. In addition, Barclays and forecasting firm LH Meyer also expect the Fed to raise terminal interest rates above 5.25%.

[nearly 40% of Japanese companies expect the central bank to reduce monetary easing]

The results of the questionnaire survey conducted by the Imperial Database on the implementation of the Bank of Japan's monetary policy in the next year or so show that 39.6% of companies expect to reduce the monetary easing policy, accounting for the highest proportion. 36.4% of companies expect to maintain the status quo, which is quite close. The person in charge of the investigation said: "Although it is good to adjust the easing line in different dimensions, many people are worried about the risks brought by a sharp change in track and demand a mild adjustment." ”