We asked for some volatility and we got some yesterday on USD. The day started with a weaker USD on the back of the Nvidia earnings report. But with jobless claims coming in lower, this adds to the case of a resilient US economy, causing USD to erase losses suffered with a slight miss on the PMI print taking the wind out of its sails. Both EU and UK PMIs came in better-than-expected, boosted by expansion in their respective service sectors.
Last night we had three Fed members continue to bolster the case for rate cuts to be delayed. Fed Waller was cautious about the jump in January’s inflation numbers, and Jefferson and Cook suggested they would like to see more evidence that inflation is heading back towards 2% before cutting rates.
UK consumer confidence fell in February suggesting that households are cautious in their outlook.
*Daily move - against G10 rates at 7:30am, 23.02.24
** Indicative rates - interbank rates at 7:30am, 23.02.24
Europe in focus this morning with the release of IFO sentiment figures from Germany, and more importantly the ECB 1 and 3-year inflation expectations. The EUR has enjoyed a good week gaining versus USD and GBP, but markets may well increase rate cut odds should inflation expectations show further easing in prices, and thus be negative for EUR. Indeed, there is consensus amongst the client base that the combination of both interest rate expectations and growth favouring the UK will see GBPEUR trade back towards the 2023 highs, and as a result we have seen increasing demand for Limit Orders at these levels. Next week sees the release European inflation numbers for February.
Despite recent data reducing rate cut expectations by the Fed this year, and thus treasury yields at Nov 23 highs, USD is set to have its first negative week of 2024, as stock market euphoria continues to keep risk sentiment high. This higher risk sentiment has led to clients placing limit orders, aiming for the highs seen earlier this month. Focus next week for the US will fall on second estimates of growth for Q4, as well as the Fed's preferred measure of inflation, core PCE. Have a good weekend all!
We mentioned in yesterday's report (see here) that following on from Nvidia’s earnings report, we would likely see a reversion on EURUSD towards its 50-day moving average and that’s precisely what we got. However rates didn’t stay there for long, and quickly reverted back towards the opening price suggesting that optimism on EURUSD is over. Eyes today on ECB inflation expectations.
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