Powell’s inflation comments shake the interest rate and foreign exchange markets

In the fixed income market, Tuesday was the topic of conversation Jerome Powellin appearance on the U.S. Senate Banking Committee. Powell is currently being heard by the committee.

Government bond yields were clearly declining on both sides of the Atlantic before Powell’s speech began, but with Powell appearing, U.S. government bond rates in particular rose sharply.

At 10:10 a.m., the U.S. 10-year government bond was down 3.4 percentage points from 1.46 percent. The interest rate on the two-year government bond, on the other hand, rose by 5.9 basis points to 0.54 per cent.

The dollar, on the other hand, had weakened against all major currencies before Powell began appearing, but as Powell’s speech progressed, the dollar clearly strengthened.

Today’s market consultation with the Senate Banking Committee has drawn particular attention to Powell’s comment on the transitory nature of inflation. According to Powell, there should be no more talk of temporaryity in the context of inflation.

Powell believes the risk of prolonged high inflation has increased. At the same time, however, Powell says he believes inflation will fall next year.

In addition, with the Powell, the US Secretary of the Treasury was consulted by the Banking Committee Janet Yellen warned of the possibility of a recession if Congress could not reach an agreement to raise the federal debt ceiling.

Eurozone inflation at record levels

In addition to Powell’s presence in the interest rate and foreign exchange markets, attention has recently been drawn to recent inflation figures in the euro area.

According to Eurostat, euro area consumer prices rose by 4.9% year on year in November. Consumer prices have not risen as fast on an annual basis since the existence of the European single currency.

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The rise in consumer prices was driven by the rapid rise in energy prices. Energy prices rose by more than a quarter from the previous year.

The rate of growth of the consumer price index came as a surprise to the market, as the consensus forecast by economists on consumer price growth was only 4.5 per cent. According to forecasts collected by Bloomberg, the forecasts of all 40 economists monitored by the news agency were below actual growth.

In recent days, the European Central Bank has been trying to convince the market that inflation in the eurozone will remain temporary. The current inflation rate is well above the central bank’s 2% target.

Interest rates on 10-year government bonds in Britain, France and Germany fell by around 2-4 basis points at 18.10. Interest rates on 2-year government bonds had moved in the direction of less than one basis point.

Source: Arvopaperi by www.arvopaperi.fi.

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