The ECB massive 75bp hike, followed up by hawkish comments from the usual “sources”, sent the common currency soaring against most of its global peers, dragging along all other European currencies, while the Japanese yen ended up again at the bottom of the rankings, dragged down by the Bank of Japan insistence on remaining the last dovish holdout among the G10.
It wasn’t just the ECB, rates went up aggressively across the world last week. US Treasury yields broke out to fresh cycle highs, but this time the move failed to support the US dollar. As this is written, European currencies are rallying further, possibly buoyed by Ukrainian military successes against Russian forces that are raising hopes of a resolution to the war there.
The key event for this week will certainly be the US inflation report for August, out on Tuesday. The headline number is almost certain to show another pullback, on the back of easing energy prices. The key however will be the more sticky core number. Regardless of the outcome, the hard hawkish pivot from the Fed means that another jumbo 75bp hike is very likely the week after this one. The Bank of England meeting scheduled for this week has been moved to the next one due to the passing of the Queen of England, so there will be little scheduled news outside inflation to move markets.