The Fed Minutes revealed an upside risk to inflation remains and more possible rate hikes are in the pipeline. Inflationary pressures remain and this is reflected in the stubbornly high ‘Core Inflation’ readings. The Fed recognise this risk and are reminded of the tight labour market conditions, adding to upside pressures in the wage/price rises. UK inflation dipped back to 6.9%, but also remains elevated and ‘Core Inflation’ remains extremely high. The extended high levels of inflation have pushed bond yields higher in Europe and the US, with UK Gilts blowing through previous highs and breeching 2008- GFC levels. Industrial and Manufacturing production in Europe remains severely depressed, although data from the US showed signs of a slight recovery there. The EUR dipped below 1.0900, while the elevated UK inflation levels, boosted the prospects of further Bank of England rate rises and the GBP pushed back to 1.2730.
The RBNZ ‘planted a flag in the ground’ and bravely held interest rates at 5.5%. Is this a confident read from the RBNZ that inflation has peaked, or merely a pause and a political tip of the hat to the looming NZ election? Inflationary pressures remain, but the heat on the RBNZ is enormous, to keep a lid on interest rates. The rising reserve has pushed the currencies lower, with the AUD falling back to 0.6420, while the neutral RBNZ inaction, has allowed the NZD to drift back to 0.5930.
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