There were a couple of developments of last week to note. Firstly, US yield curve inverted for the first time since 2019. There is no reason to panic for the moment, but deeper inversion could set the tone in the risk markets ahead. Secondly, Euro ended as the strongest one, attempting to extend its near term rebound. But momentum of the common currency has been rather disappointing. Euro still have a lot to prove. Thirdly, Yen's recovery faltered somewhat and ended as one of the worst performers. There is prospect of a return to weakness in Yen. But deeper pull back in benchmark treasury yields has the prospect to give Yen a hand. Elsewhere in the forex markets, Swiss Franc and Dollar were the second and third best performer. Sterling and Kiwi are among the worst. While the impact of Russia invasion of Ukraine seemed to be fading, the overall direction of of major forex pairs and crosses will continue to hinge on the developments on it. Risks are two sided as acknowledged by central bankers from the BoE and ECB, higher inflation and lower growth. Chance of stagflation is so far talked down, but it will depend on how long the invasion would last. |
