TREX Global:Powell pleases hawks and doves at the same time, the dollar and U.S. debt diverge

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Powell: Didn't expect jobs to be so strong, but U.S. is in process of 'lower inflation'

Federal Reserve Chairman Jerome Powell said on Tuesday that last Friday's report showing job growth spurts showed why the battle against inflation would "take a considerable amount of time." He acknowledged that rates may need to rise higher than expected if such economic strength threatens the Fed's progress in reducing inflation.

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The Fed's preferred measure of annual inflation was 5 percent as of December, still more than double the target level. While Powell said he expects inflation to fall sharply this year, the U.S. economy is still in the "inflationary stages of disinflation."

Dollar gains capped as Powell fails to turn hawkish

The U.S. dollar index retreated from a one-month high on Tuesday as Federal Reserve Chairman Jerome Powell refrained from reverting to a hawkish stance despite Friday's stellar U.S. nonfarm payrolls report, which reiterated last week's statement that inflation had begun to slow. Inflation is expected to fall sharply this year. That convinced investors that the Fed was unlikely to tighten policy further than markets had priced in.

U.S. trade deficit widens in December after reaching record $948.1 billion last year

The U.S. trade deficit widened in December as imports rebounded, while exports of goods fell to a 10-month low amid cooling global demand and lower crude prices. Half of the sharp drop in the trade deficit in November was reversed.

The report from the Commerce Department on Tuesday also showed a record high trade deficit in 2022. The deficit is expected to widen again in January, and economists expect trade may not support the economy this quarter after contributing to gross domestic product growth for three straight quarters.

The trade deficit rose 10.5% to $67.4 billion in December. The trade deficit narrowed sharply by 21.1% to $61 billion in November. These figures are not adjusted for inflation. Adjusted for inflation, the real goods trade deficit widened to $98.6 billion from $96.1 billion in November.

The trade reading was close to the assumptions made by the Commerce Department's Bureau of Economic Analysis in its preliminary estimate of fourth-quarter gross domestic product released last month. The smaller trade deficit was one of the factors behind the economy's 2.9 percent annualized growth last quarter.

The trade deficit widened to a record $948.1 billion in 2022, or 3.7% of GDP, and $84.5 billion in 2021, or 3.6% of GDP. Exports are expected to increase by $453.1 billion in 2022 to reach $3 trillion. Imports surged $556.1 billion to $4 trillion.

U.S. 10-year Treasury yields continue to rise as Fed Chairman Powell reiterates that interest rates will continue to rise

Benchmark U.S. 10-year Treasury yields continued to move higher on Tuesday after Federal Reserve Chairman Jerome Powell said interest rates may need to rise higher than expected if strong economic data threatens progress on reducing inflation.

ECB Governing Council Nagel calls for further sharp rate hikes, says there is no limit to current rates

Bundesbank President and ECB Governing Council Nagel said that the ECB needs to raise interest rates further and sharply to push inflation back to 2%, but given the current uncertainty, it should be done gradually.

"My current stance is that we need to raise rates significantly further," Nagel said. "But I think we're right to move forward incrementally."

He added that the current ECB interest rate was not at all “restrictive” in his view and was well below the rate of inflation.

ECB survey: Energy prices fall, but inflation expectations still rising

Euro zone consumers' inflation expectations rose again in December, a survey by the European Central Bank showed on Tuesday, suggesting recent interest rate hikes and lower energy prices have yet to ease concerns about price growth.

Inflation peaked at more than 10% in October, but has since fallen rapidly as gas prices fell, even as underlying price growth has continued to pick up gradually.

Median inflation expectations for the next three years rose to 3 percent in December from 2.9 percent a month earlier, the ECB said, based on a survey of about 14,000 adults in the six largest euro zone countries. But the median forecast for the next 12 months held steady at 5%.

TREX Global’s view:Although Powell said that he will further raise interest rates, the overall speech content is not particularly hawkish, and the dollar’s rise has been hindered. In the past few trading days, the dollar’s short-term gains have been relatively large, and the dollar also has some adjustment needs. Gold prices stick to the 1860 mark There is a need for a further rebound in the short term in the market outlook, focusing on resistance at the 1886.50 and 1900 mark. However, it is expected that more Fed officials may comment on the non-agricultural data. The market may further increase the Fed’s terminal interest rate expectations. Space, if the gold price cannot regain the 1900 mark, the market outlook will still tend to fluctuate downward.

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