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Bannockburn Global Forex February 4, 2023 View Online Economic Calendar Feb 6: Reserve Bank of Australia Feb 7: Reserve Bank of India Feb 8: Poland Central Bank Feb 9: China CPI and PPI Feb 9: Sweden Riksbank Feb 9: Mexico Central Bank Feb 9-10: Special European Union Council Feb 10: UK December and Q4 GDP Feb 10: US CPI Seasonal Adjustment Feb 10: University of Michigan Preliminary Feb Survey Feb 10: Canada Employment Feb 13: Japan Q4 GDP Feb 14: Eurozone Q4 GDP Feb 14: UK Employment Feb 14: US January CPI Feb 14: OPEC Monthly Report Feb 15: China 1-year Medium-Term Lending Facility Feb 15: UK CPI Feb 16: Australia Employment Feb 19: China Loan Prime Rate Feb 21: Reserve Bank of New Zealand Feb 21: Preliminary February PMI Feb 21: Canada CPI Feb 22: FOMC Minutes Feb 23: Japan CPI Feb 24: US PCE Deflator Feb 28: French Feb CPI and Q4 GDP Feb 28: Spain Feb CPI Feb 28: Canada Q4 GD February 2023 The new year began amid optimism among investors. Equities and bonds rallied in January, clawing back some losses from last year. The dollar traded heavily, falling against most G10 and emerging market currencies. However, after the February 1 FOMC meeting, the dollar's sell-off exhausted the near-term selling pressure. An upside correction may be seen in the first part of February. We see this as a countertrend move and expect dollar weakness to re-emerge. The reopening of supply chains and the still strong labor markets have seen the pendulum of sentiment push away from the pessimism seen in the waning months of 2022. There is increasing speculation of soft landings in the US and Europe, including by the vocal Fed critic Lawrence Summers and the International Monetary Fund. A relatively warm winter so far in Europe, conservation efforts, and securing ample supplies have averted the crisis that had threatened. The reopening of China and early data from the Lunar New Year holiday also boosted optimism. Still, sentiment is fickle, and the inversion of various parts of the US and European yield curves caution against thinking that the risks have passed. Click here for further currency analysis Bannockburn's World Currency Index, a GDP-weighted basket of the dozen largest economies, appreciated by about 1.7% in January as the world's currencies outperformed the dollar. It was the third consecutive monthly gain, and it has recovered a little more than half of what it lost since the mid-2021 peak. Leaving aside the Russian rouble, which is a special case, the Brazilian real and Mexican peso were the strongest currencies in BWCI, appreciating by 3.8%-3.9%. The Australian dollar was the strongest among the developed market currencies, with around a 3.3% gain. None of the currencies fell, but the Japanese yen (~0.8%) and the Indian rupee (~1.0%) were the weakest performers. We see the appreciation of the BWCI confirming a significant trend reversal in Q4 22. The dollar's rally that pushed measures of valuation to historic proportions, is over, barring a new shock. The dollar's rally seemed increasingly driven by Fed policy, and that fuel looks spent. Still, the magnitude corrections have been modest at best, and for many pairs, the greenback moved broadly sideways to consolidate its losses. That said, a more significant correction appear to be unfolding. We suspect the BWCI could give back January's gain.