USD/JPY hits 120 post-Powell, oil helps the FTSE

European bourses point to a mixed start following a modestly lower close on Wall Street, after Fed Chair Powell reiterated the US central bank’s hawkish position. Oil surges & UK PSNB rises by more than forecast.

• Powell reaffirms the Fed’s hawkish position, boosting the USD
• Oil builds on 7% gains booked yesterday as fears of the EU banning Russia oil linger
• UK public sector net borrowing (PSNB) rises by more than expected ahead of tomorrow’s Spring Statement

The head of the Federal Reserve hammered home the hawkish message from last week’s FOMC, saying that the Fed will take the necessary action to bring surging inflation back under control. He confirmed that the Fed would hike rates by over 0.25% in any meeting if that were deemed the necessary action. 

USD/JPY

The hawkish comments hurt demand for stocks, while boosting the USD, particularly versus the Japanese yen. Powell’s comments are in sharp contrast to the BoJ, which last week remained accommodative, sticking with its massive stimulus programme and echoed its position overnight. USD/JPY rose yesterday and is building on its gains again today, rising through 1.20 to a fresh six-year high. Buyers could now look towards 121.70, the 2016 high.

Oil

Since Russia invaded Ukraine, barely a session passed without some wild moves from oil prices. Yesterday the black stuff rallied 7%, and today those gains are being added to. US crude trades over $112 while Brent tops $115 as support grows among European leaders for a ban on Russian oil. 

As the Russian attacks on Ukraine continue, the West is looking for ways to ramp up pressure on Moscow. While any quick decision to ban Russian oil is unlikely, it is on the table for discussion. Europe’s leaders are due to meet on Thursday; all 27 leaders would need to agree to the move, and given Germany’s dependence on Russian oil, they have been against it so far. Still, the oil market remains jittery, reflected in the surging prices and steep backwardation.

FTSE

The firmer oil prices helped the FTSE outperform its European peers at the start of the week. The UK index rose 0.5% yesterday, booking its highest close in over three weeks, whilst the DAX closed 0.6% lower. Today, the FTSE points to a loss of a few points on the open but is set to remain comfortably above 7400.

Public sector net borrowing

The economic calendar is relatively quiet today. The only release of note is the UK public sector net borrowing figures which come ahead of the Chancellor’s Spring Statement, which he will deliver to the House of Commons tomorrow. The data revealed that Public Sector borrowing was higher than expected in February at £12.8 billion, well above the £8.1 billion forecast. This was below the £15.3 billion recorded in February last year. 

Despite the fall compared to a year ago, the ONS confirmed that this was the second-highest February borrowing since records began in 1993 and was still £12.8 billion more than February 2020 before the pandemic hit. The data also showed that interest payments on Government borrowing rose to a record £8.2 billion. 

The pound trades higher versus the weaker euro but lower versus the strong USD at 1.3140, strong support sits at 1.30.