After a slight lull before the new year, concerns are rising again that the global economy will face a new round of inflation. This can be seen from the rally both in oil and bond yields of leading economies since the start of the year:

Markets are pricing in four Fed rate hikes this year (range 100-125bp, current 0-25bp) and the likelihood of this outcome is rising:

The Fed is expected to raise rates at its next meeting and announce that it is ending QE. Markets will wait for the Central Bank to hint at three more rate hikes and talk about selling bonds from the balance sheet. If the Fed fails to meet these expectations, bond yields will go into a pullback, and the dollar may again come under pressure.

There are a growing number of signals from the oil market that it risks to fall into deficit. OPEC data for December shows that members are behind schedule for planned production hikes. In addition, a pipeline explosion in Iraq temporarily limited production by 450K b/d.

The UK inflation report showed that price growth accelerated in December to 5.4% and beat forecasts by 0.2%. South Africa also reported today that price increases accelerated in December.

The most vulnerable to a fall against the dollar next week may be low-yielding currencies - EUR, JPY. On the other hand, currencies depending on cycles, commodity exports, oil in particular, are likely to be able to counter a likely strengthening of the dollar. In addition, the currencies of countries where central banks are taking a course on policy normalization are likely to be a top choice - among them GBP, NOK, CZK.

Today, the markets will focus on the comments of the head of the Central Bank of England Bailey, in light of the upcoming meeting in February, where a rate hike is expected, the balance of risks for the pound is shifted towards more upside. EURGBP may test 0.83 and test resistance lower - for example 0.8270.

Canadian inflation data, which is due today, is likely to support the CAD as the risk is shifted towards a positive surprise against the backdrop of rising inflation in other economies, and in general in the world. EURCAD is the most vulnerable to decline among crosses – the pair has broken through 1.42 (March 2020 and November 2021 lows) and is likely to head towards 1.40: