The first week of 2022 saw volatility in bond markets outstrip that of FX markets as rates traders shifted their expectations for monetary policy across multiple tenors and curves. December’s FOMC meeting minutes on Wednesday was a major catalyst for the repricing in US Treasuries, which had ripple effects across all core rates. Meanwhile, the reaction in the G10 FX market to the Fed meeting minutes was rather muted, with the dollar bid coming on Thursday instead of immediately after the release, but even then most G10 pairs continued to trade in this week’s ranges. Even December’s Nonfarm payrolls data struggled to ignite FX markets despite the negative surprise in the net employment data as signs were visible that slack is diminishing at a fast rate in the US labour market. With pressure on the Fed mounting, next week’s inflation data focus will be key for market pricing of rates, but it isn’t a given that this will bring about volatility in the FX space.
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Simon Harvey, Senior FX Market Analyst
Ima Sammani, FX Market Analyst