Risk-Off Flows Sweep Across G10 FX Space After Fed's Hawkish Turn

The Fed's hawkish pivot turned the risk switch to off, driving defensive flows across the G10 FX space. Wednesday saw the FOMC set the scene for a March rate hike, while Fed Chair Powell signalled resolve in efforts to tackle elevated inflation, raising the prospect of a more aggressive tightening trajectory.

• Participants sought shelter in safe havens. USD/JPY printed a one-week high in early trade before trimming gains as demand for the greenback re-emerged. The DXY touched its best levels since Dec 20.
• Commodity-tied currencies went offered alongside crude oil futures, with the Antipodeans leading losses. The kiwi dollar was the worst performer, despite another beat in New Zealand's inflation data. Consumer prices in New Zealand grew 5.9% Y/Y in Q4, topping the median estimate & Nov MPS projection of 5.7%, as headline inflation reached the fastest pace since 1990. Meanwhile, the RBNZ's preferred measure of underlying inflation accelerated to +3.2% Y/Y, moving further above the mid-point of the Reserve Bank's target range. NZD/USD ignored domestic data and tumbled to its worst levels since early Nov 2020.
• Offshore yuan sank as the Asia-Pacific digested hawkish FOMC rhetoric. A slightly weaker than expected yuan fixing may have amplified selling pressure which helped the redback move further away from a new cycle high printed pre-FOMC on Wednesday.
• Today's data docket is rather U.S.-centric and includes local GDP, durable goods orders & jobless claims. Comments are due from ECB's Scicluna.