Yen appreciation abated somewhat with USD/JPY rising close to 111

Market movers today

• In the UK, CPI inflation for December is released, which we est imate fell back to 2.9%, from 3.1% in November, due mainly to a lower contribution from food prices. We est imate core inflation fell from 2.7% to 2.6% due to a decrease in service price inflation. Despite the higher oil prices, we expect overall inflation pressure in the UK to fade t his year, as food prices seem to have peaked and GBP has stabilised in recent months. Underlying inflat ion pressure is still muted, as wage growth remains subdued.

• Later in the day we also get the US Empire Manufacturing PMI for January. Consensus is for a small increase, although severe winter weather in the region might have impaired economic activity to some degree at the start of 2018.

• No scheduled Scandi events for today.

Selected market news

Despi te (more) hawkish ECB comments Monday afternoon, it has been a relatively quiet session overnight wi th focus across markets remaining on the continued dollar rout/euro rebound. In equities, it has been an overall positive session in Asia with most indices seeing small gains and notably the Hang Seng hit t ing new record highs (US was out yesterday for Martin Luther King Day). Yen appreciation abated somewhat with USD/JPY rising close to 111 again this morning as focus on the risk of Bank of Japan policy possibly becoming less accommodat ive faded somewhat . Also, oil prices edged higher yet again with Brent crude hovering around the USD70/bbl mark after Iraq called for continued OPEC production curbs over the weekend.

Hawkish comments from the ECB's Han sson yesterday in a German newspaper interview added fuel to the fire under already-aggressive ECB pricing (a first hike priced in for early 2019) and sent EUR/USD close to 1.23. While a perceived hawk, Hansson notably said that QE purchases could be taken to zero in one go, suggest ing new purchases could end as early as Q4 this year, provided the economy is on t rack. He added that policy guidance should be adjusted ahead of the summer and, further, that recent euro appreciat ion provides lit t le threat to the eurozone inflation out look. This line of reasoning adds to the tone of December ECB minutes and paints the picture of a cent ral bank, where – at least some – members look increasingly keen t o get going on policy ‘normalisat ion'. A few ECB speakers coming up later this week but otherwise market focus will turn to Mario Draghi's st ance at next week's ECB meet ing. While we look for a softening tone at the January meeting, it is noteworthy that only hawks have been speaking publicly since the aggressive market reaction fol lowing the minutes last week.

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