The EUR gained yesterday after data showed that wage growth eased to 4.5% in Q4 of 2023, from 4.7% in Q3 – more or less in line with projections. EURUSD climbed to a two-week high before meeting resistance and GBPEUR fell to a month low before meeting a previous support level. The lack of follow through suggests that these gains on the EUR may well be limited, unless PMI numbers on Thursday can surprise to the upside.
Rate cut bets increased marginally by 5 bps after BoE Governor Bailey suggested that inflation does not need to fall to the BoE target of 2% before the Bank starts cutting interest rates.
And over in Canada, inflation fell more than expected adding to rate cut bets across this year – CAD was weaker as a result.
USD in general was weaker as treasury yields fell. GBPUSD climbed back to the highs prior to last week's US inflation numbers before meeting resistance.
*Daily move - against G10 rates at 7:30am, 21.02.24
** Indicative rates - interbank rates at 7:30am, 21.02.24
Ahead of tonight's FOMC meeting markets will be likely be guided by risk appetite, especially as Chinese equity markets continue to rally, causing weakness in USD. We referenced above that both GBPUSD and EURUSD hit some key resistance levels, indicating USD buyers in the market reluctance to chase both pairs higher. Same with GBPEUR where we hit support at the lows of the 31st Jan, 5th Feb, 15th Feb, where EUR sellers seemingly less inclined to seek lower GBPEUR rates.
Also, something to consider with regards to risk appetite in markets could come from the Nvidia results this evening. US equity markets have been buoyed by seven of the big tech stocks, including Nvidia. A positive gauge of their results will add to further risk appetite and could weaken USD.
USD weakness continued yesterday, with the USD index retracing the gains made following last week's inflation numbers. The index found support within its 2024 uptrend channel ahead of tonight’s FOMC minutes, PMI numbers on Thursday, and Fed Waller speaking on Friday. Better than expected economic activity and a hawkish outlook will be needed for the trend to be the friend of the greenback.
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