The US CPI inflation reading came in hotter than expected, jumping 0.5% for January, putting a ‘3’ in front of the annualised rate. Perhaps Federal Reserve Chairman Powell had read the tea leaves and seen inflationary pressures on the rise, in the US economy, as he has earlier stated to congress that ‘he was in no hurry to make further interest rate cuts. The release of the CPI number was enough to boost bond yields and savage equity markets, while the US Dollar initially spiked. The rise in bond yields and the surge in the US Dollar was short lived, as the Dollar settled lower. The EUR jumped back towards 1.0400, while the GBP pushed up to 1.2440. Powell brushed off questions from Congress, regarding Trumps call for lower rates globally, setting up a confrontation between two powerful forces. The Fed may be the target of some gentle persuasion, in the form of rhetoric initially, which may well take a more substantial iteration. Trump has already threatened to audit the Fed, which has not happened in the entire history of the Fed and would shake the institution to its foundations.The initial spike in the reserve, following the US CPI number release, slammed the NZD back to 0.5600 and the AUD dropped to 0.6240. This was short-lived and both currencies have returned to the pre-CPI trading levels, with the AUD trading just below 0.6300, while the NZD heads back towards 0.5650. Inflationary pressures are on the rise, and markets will be keenly watching the German CPI release, set for tonight.
