The US Dollar jumped higher overnight after two Federal Reserve speakers talked up the prospect of 50 basis point hikes and a business inflation gauge re-accelerated.
Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard both indicated that they would consider a 50 bp lift of the Fed funds target rate at the meeting in late March.
Both board members previously made their hawkish stance well known. The swaps and futures markets have priced in only 25 bp at the next two meetings.
The producer price index (PPI) data came in hot for January at 0.7% month-on-month, above the 0.4% anticipated and -0.5% previously. This gave an annual print of 6.0% year-on-year, surpassing the 5.4% forecast.
Similarly, the core measure also picked up steam, with PPI ex-food and energy increasing by 0.5% last month against 0.3% expected and 0.1% prior. The heat in the PPI numbers comes on the heels of CPI data seen earlier in the week that also re-accelerated in January.
Housing starts and building permits were a slight miss, coming in at 1309k and 1339k respectively for January. Initial jobless claims were slightly less at 194k for the week ending February 11th, while continuing claims were in line with expectations at 1696k for the week ending February 4th.
The solid data saw Treasury yields once again move higher across all tenures with the back end seeing the most gains. This saw the closely watched 2s 10s yield differential contract to -0.78% after trading at -0.88% this week, a level not seen since the early 1980s.
Later today we will hear from Richmond Fed President Thomas Barkin and Federal Reserve Governor Michelle Bowman. The degree of their hawkishness will be closely scrutinised by the market and could move the ‘big dollar’.
DXY, (USD) INDEX, 2-YEAR AND 10-YEAR TRESUTIES AND 2s 10s CURVE