What to watch

The main event of the day will undoubtedly be the release of US CPI this afternoon. Indeed, it has been US rate expectations that have been the biggest driver of currency moves over the past 24 hours too.

• Yesterday we had comments from Mester that if the economy was the same in March as it was today that she would support a hike in March, driving the Eurodollar strip to its lows of the day (and USD to its highs) before Powell's testimony was not quite as hawkish as expected and saw these moves more than reverse. Powell's comments introduce some more two-way risk to today's print. After Mester, March was looking pretty much a done deal in markets but there is more uncertainty again after Powell's comments.
• A strong CPI print today could put us back on the Mester (rather than Powell) track, seeing the USD strengthen and the Eurodollar strip come under pressure again. As we noted in our CPI preview overnight (see here), the persistence of the move is likely to be determined by how persistent the surprising factors are in the CPI print. If it is shelter, for example, a factor that is likely to keep CPI persistently high, that surprises to the upside, this is likely to have a more lasting market impact than a one-off factor surprising. Similarly, if we get a downside surprise due to temporary factors, that is likely to be dismissed by the market too.
• The other potentially big event of the day is Prime Ministers Questions in the UK. Boris Johnson's position seems to be increasingly precarious in light of the lockdown garden party held at Number 10 and it will be interesting to see how he fares in today's PMQs. There are increasing calls from within his own party that Johnson's future is looking untenable.