US dollar rebounds in the countdown to CPI

US dollar buying has picked up since the equity open, possibly on inflows into tech stocks. The bond market isn’t doing much today with US yields fractionally lower across most of the curve and up 0.1 bps at the 10-year tenor.

That’s in contrast to the UK where 10s are up 6.2 bps and 2s are up 7 bps to 4.61%, which is the highest since Sept 2022.

Despite that, cable is plunging down to 1.2524 from 1.2599 just three hours ago.

I tend to think there is some repositioning going on ahead of what will be a huge macro week tomorrow starting with US CPI and Wednesday with the FOMC, then retail sales on Thursday.

There is some gathering sentiment that the economy is stronger than anticipated and inflation is more stubborn. That could re-ignite the 6% Fed funds debate.

One line of thinking is even that weather will play into firmer inflation . Deutsche Bank writes today that the US Climate Prediction Center sees a 56% chance of a strong El Nino in the November-January period:

“This is increasingly being priced into commodity prices with coffee, sugar and cocoa futures surging in recent weeks as the risks build. Indeed El Nino’s correlate with higher inflationary pressures so we need to watch it carefully.”

Update: US yields are playing a bit of catch-up now.

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