Rates as of 0500 GMT

Market Recap

Tuesdays market action was in part just a reversal of Mondays. The safehaven currencies that gained on Monday USD, JPY, CHF were the main losers. The commodity currencies werent the main gainers, though.

GBP was the bestperforming currency after yesterdays UK employment data showed payrolls increasing by double the estimated number and average earnings rising much more than expected see table above. The solid results confirm the Bank of Englands worries that Domestic inflationary pressures are projected to remain strong over the first half of the forecast period because of the tight labor market and high underlying nominal wage growth. This mornings higherthanexpected UK consumer price index CPI see table able should only reinforce that view. The Bank of England forecast inflation of around 13 by Q4, but it looks like the country could get there even earlier.

Fitting in with the reversal theme, Monday there was a global move lower in bond yields. Tuesday they all moved back up, with GBP taking the lead.

The initial impetus for the move higher in rates came from Canada, where two of the three core inflation measures came in higher than expected. Not only did this have an impact on Canadian bond yields but also pushed up US Treasury yields. Its significant that the market paid more attention to the rise in core inflation than to the fall in headline inflation, which admittedly had been expected. This ties in with what I said in my…