Welcome back and happy new year to you all. So a quick recap of activity over the Christmas period to begin with. The Fed rate cut narrative continued to propel equity markets to hit all time highs, and caused USD to weaken further, which saw GBPUSD and EURUSD hit resistance levels from August last year. Those gains were short lived as markets booked profits in an illiquid market.
* Daily move - against G10 rates at 7:30am, 02.01.24
** Indicative rates - interbank rates at 7:30am, 02.01.24
We start 2024 with final manufacturing PMI numbers from December, with the only deviation expected in the US numbers being a minor uplift expected. For the rest of the week, focus will fall on December's inflation numbers from Europe and whether the data brings forward when the first rate cut will be expected by the ECB this year – currently markets are pricing in a 60% chance of a cut in March, and a total of 160 bps worth of cuts across this year. US job numbers will also be the highlight with JOLTS job openings, ADP payrolls, and nonfarm payrolls, and we have the latest FOMC minutes from December's meeting. Rate cuts are still the driver and we wait to see the implication of these data points on USD. Markets currently put a 90% chance of a rate cut in March.
For comparison, markets are pricing in a 28% chance of a rate cut in March – the lowest in comparison to the US and Europe. Should this persist, then GBP seems likely to be supported in the near term.
Moves so far this morning is seeing a weaker EUR, stronger GBP, and and a stronger USD on the back of rising oil prices, as Iran sent a warship into the Red Sea in response to the US Navy sinking three Houthi boats over the weekend.
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