USD has firmed – Westpac

USD has firmed as yields eye 3% but it may have more to do with yields finally crossing a pain threshold and impacting risk premiums/risk appetite rather than any direct link to the USD, according to Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“Regardless, upcoming updates on US growth and wage/inflation (Jan CPI and retail sales due Wed next week) likely key drivers of asset markets. Beyond that Chair Powell’s semi-annual testimony (28 Feb), general elections in Italy (4 March), the next ECB meeting (8 March) and the next update on average hourly earnings (9 March) will be pivotal.”

“Markets may have jumped the gun on US wage risks, with a sharp fall in hours worked due to bad weather a possible culprit behind the jump in average hourly earnings to 2.9%. Key metrics such as the prime aged employment to population ratio remain some distance from inflationary levels. Potentially benign wage and PCE reads ahead should restore a more benign narrative for asset markets.”