Tom Westbrook provides an update on the European and global markets for the day ahead.
Unease is growing in emerging markets, particularly in Asia.
As the dollar soars, the British pound and the euro are hanging dangerously above support levels of $1.24 and $1.06, respectively, and the yen is hitting new three-decade lows every day.
The main driver is the strength of the U.S. economy and falling expectations for rate cuts, which fell further after Federal Reserve Chairman Jerome Powell changed his hawkish tone.
But China gave the dollar another boost this week by signaling, via a weakening of its yuan fluctuation band, that it could tolerate a slight decline in its currency.
This has sparked a firestorm for neighbors, who tend to follow the yuan’s lead, and makes it much more difficult for smaller central banks to cut rates, as this only adds pressure to the market. exchanges.
It’s a headache for swaths of Asia where inflation has never been higher and policymakers were bracing for cuts to support spending and economic growth.
Indonesia’s central bank, which is responsible for ensuring the stability of the currency, intervened on Tuesday to stabilize the rupiah, and analysts wonder whether it will not be forced to increase rates as early as next week.
On Wednesday, the rupee hit its lowest level since the pandemic peaked in markets in March 2020.
The Indian rupee hit a record high on Tuesday. The Vietnamese dong has reached a record high and is in free fall.
Malaysia, Japan and South Korea have warned that they stand ready to intervene, which, until now, has kept these currencies from reaching certain historic levels.
Outside of Japan, the prospect of a rate cut in Asia this year is fading. In Japan, rising yields failed to keep pace with selling in the U.S. Treasury market, widening the 10-year yield spread to more than 380 basis points.
Later today, UK inflation is expected and base effects are seen as encouraging a decline in the rate of increase in core and overall prices. Final eurozone inflation figures are also awaited, although they are likely to follow preliminary data.
An Israeli government Source said a war cabinet session scheduled for Tuesday had been postponed until Wednesday, likely pushing back any response to an attack by Iran later this week.
Main developments likely to influence the markets on Wednesday:
UK CPI
Fed releases Beige Book on economic conditions
American results: Las Vegas Sands, Abbott Laboratories
