Dollar fast out of the traps

Market reports
Thanim Islam
  • Risk aversion to start the year as tensions in the Middle East rise
  • First set of jobs data expected this week

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A reversal of the end of 2023 weakness on USD continued yesterday, with both GBPUSD and EURUSD suffering their biggest drop since October. Risk aversion was the tale of the tape as equities plunged as tensions continued to rise in the Middle East. The GBP index is now at the lowest since the 23rd November and has gone through October's uptrend channel. Worth noting that seasonally, USD tends to outperform in the first three months of the year (based on 10-year average).

On the data front, EU manufacturing numbers were revised marginally higher, and both the UK and US numbers were revised lower.


Market rates

* Daily move - against G10 rates at 7:30am, 03.01.24

** Indicative rates - interbank rates at 7:30am, 03.01.24

Table - 2024-01-03T082329.342

Data points

Table - 2024-01-03T082330.895


  • None today.

Our thoughts

Today sees the first set of job numbers from the US, with the number of job openings expected to increase marginally. Suggestions that the job market is still strong will likely see rate cut expectations decrease from the Fed and thus continue this rebound on USD. We expect tonight’s FOMC minutes to have a hawkish tone, pushing back on dovish rate expectations.

GBPUSD breached the October downtrend yesterday. However, to see additional losses on the pair, this week’s jobs data will need to support the move, as well as the release of tonight's minutes from the Fed’s December meeting. Markets will also be keeping an on developments in the Red Sea and the impact this has on risk sentiment following yesterday's drop in equity markets.

Chart of the day

GBPUSD could well be exposed to further declines if yesterday's price action is anything to go by. Yesterday's drop pierced the end of the October downtrend before finding support at the 21st December low. A drop through here could see rates fall to the 13th December low. The fundamental picture as well as seasonal performance is also supporting USD at the moment, with markets starting the year risk. This week's jobs data will be key in determining if the dovish pricing of Fed rate expectations are right or not. Strong data and we could well see GBPUSD decline further.

03012024 cotd
Source: Bloomberg Finance L.P.

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