Inflation on the up in the US but Dollar strength short lived [Video]

Today's Highlights

• Sterling recovers as Brexit process moves forward

• Employment up but fails to move Australian Dollar

Current Market Overview

Inflation in the US has re-emerged after a long period of dormancy as it surged to 0.5% in January. Earlier this month, investors were spooked, as equity market tanked after a spike in treasury yields. Wall Street was worried that higher inflation will force the Federal Reserve to raise US interest rates more aggressively - even if the markets suffer - shifting money into bonds and potentially choking off the economic expansion. The US Dollar strength proved short lived despite further upside in US government bond yields. 

Federal Reserve officials seek to keep annual inflation at 2% and by doing so expect to raise rates three times this year. Investors, who have bet successfully for years that the Fed would be wary of raising interest rates too quickly, are still sceptical on the number of rate increases that the Fed is expecting, though they have grown less sceptical since the start of the year. This time, though, the economy is about to get a double dose of stimulus from the tax cut and the Budget deal. 

Sterling recovers as Brexit process moves forward

Sterling is now trading back above 1.40, after news emerged that European Union negotiators have dropped a 'punishment clause' from their guidelines pertaining to the transitional Brexit period that is currently under negotiation. This moves the Brexit process forward and will likely entice further concession from the UK. 

Employment up but fails to move Australian Dollar

Australian unemployment ticks lower to 5.5% in January. Australia’s headline unemployment rate edged lower in January 2018, as female participation in the country’s labour force hit a record high. The Sterling-Australian Dollar exchange rate has barely moved on this news and has continued to trade within a tight band over this week. 

President Zuma resigns in South Africa

In other news, South African President Zuma resigned, bringing an end to his scandal-marred tenure and leaving the nation’s leadership in the hands of the ruling African National Congress (ANC) new leader Ramaphosa.