Markets were very quiet over European trading hours, waiting for the revisions to US inflation. The standout performance was from NZD on the back of a hawkish RBNZ. Clients were relatively active ahead of this week's data points, particularly on GBPEUR, as there seems to be some nervousness that the pair can break above the 2023 highs. Action on GBPUSD and EURUSD was relatively balanced, with clients electing to see the outcome of this week's US inflation numbers.
US inflations revisions showed a lowering of expectations for Q1 this year, Q2 and Q3 revised higher, and with Q4 unchanged. The lack of any major revision caused little action on USD.
* Daily move - against G10 rates at 7:30am, 12.02.24
** Indicative rates - interbank rates at 7:30am, 12.02.24
Chalk and cheese comes to mind comparing this week to the last. Big week particularly for the UK, with the release of jobs numbers (Tue), inflation (Wed), GDP (Thur), and retail sales (Fri). There remains a lingering concern of stagflation in the UK, and this week will give us a fresh indication if we are heading towards that path or not.
US inflation and retails sales will be a key barometer for the US as well. Last month's inflation surprised to the upside, causing market to reduce the amount to expected rate cuts this year. A further uptick in inflation on Tuesday and we will likely see a continued reduction of the odds of a cut in March – USD positive.
For the eurozone this week we’re looking at Q4 GDP numbers, expected to show growth at 0%.
On Friday, US equities continued to make new all time highs, keeping the mood in the markets buoyant, and should support GBPUSD and EURUSD today ahead of UK job numbers and US inflation numbers tomorrow.
GBP is the second best performing currency so far this year, and tomorrow will face its first big test for the week. Markets continue to put higher odds for a rate cut by the BoE in August this year, and we will need to see a drop in wage growth below 5.6% for the three months to December to suggest that these rate cuts will come sooner, and to be GBP negative. The numbers are due for release at 7am tomorrow.
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