Trading was very mixed yesterday before the major data points coming out for the rest of the week. Central bank speakers (Fed Bowman and ECB Wunsch) continued to push back against any immediate needs for rate cuts, but this had very little impact on FX rates. Action across the desk continued to see EUR buying, hedging against the risk of UK data disappointing, and clients interested in GBPUSD and EURUSD clients continued to put Limit Orders in to take advantage of moves from today's US inflation numbers.
Away from FX markets, there were a couple of things to note that caught my eye. Firstly, action in the money markets saw a trade being put on that will pay off should the ECB cut interest rates by 0.75% by June. This is versus current expectations pricing in 0.37% worth of cuts over the same period. Secondly, as US equity markets continued to hit record highs, buoyed by consumer spending, and no signs of economic growth slowing, credit card debt per US household is now at record levels, which could well be providing a worrying sign for things to come.
* Daily move - against G10 rates at 7:30am, 13.02.24
** Indicative rates - interbank rates at 7:30am, 13.02.24
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GBP is slightly stronger this morning on signs that the UK job market was stronger than expected in the three months to December. Average weekly earnings, excluding bonus, came in at 6.2% vs an expected slowdown to 6%, the unemployment rate slid to 3.8% from 4%, and employment rose by 72,000 vs an expected 50,000. Markets have now dropped odds of a June rate cut from 70% to 53% by the BoE, and all eyes now will be on tomorrow's inflation numbers, particularly services inflation which is expected to rise to 6.8%. A higher-than-expected print tomorrow morning, and we will likely see markets push GBP higher. Please contact our dealing desk on +44 (0)20 7778 7500 to discuss how placing a Limit Order can help take advantage of any such moves.
US inflation numbers are the big event for the rest of the day, with expectations that inflation will continue to ease to 2.9% and core inflation to ease to 3.7%. USD could be susceptible to weaken further if that’s the case, and following on from GBP moves earlier this morning, GBPUSD could well test the upper side of the range which will delight our clients who have placed orders. But as mentioned above, UK inflation is out tomorrow morning, so any gains in the afternoon could be limited until we get the UK numbers out.
UK wages growth slowed less than expected in the three months leading up to December, suggesting that the Bank of England may delay cutting rates from June to August. GBP is up across the board this morning, with markets likely to wait until tomorrow's inflation numbers before chasing the currency higher.
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