The early USD gains from the morning were steadily erased over European trading hours after mixed data points from the US. US GDP for Q4 was revised lower to 3.2%, but consumer spending over the same period was revised higher to 3%, and core PCE higher at 2.1%. Equities recovered some of their initial losses, and thus we saw a weaker USD on the improved risk mood elsewhere. Hawkish commentary from the BoE and ECB failed to have an impact, as markets focus on upcoming US inflation data due later today.
The German economy continues to stall, as evidenced by much weaker-than-forecast Retail Sales data out this morning, which showed a fall of -0.4% vs expectations of a 0.5% rise.
The Japanese Yen has seen broad overnight gains following hawkish wage settlement comments from the BOJ.
*Daily move - against G10 rates at 7:30am, 29.02.24
** Indicative rates - interbank rates at 7:30am, 29.02.24
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Low volatility in currency markets continues as traders await key US and EU inflation data. The start to the year has seen GBPUSD trade in the tightest range since 2019 as US and UK interest rate cut projections have moved in tandem. With global interest rate cuts forecast to start in Q2, and then US and UK elections due later in the year, this could well be a year of 2 halves. To date equity markets have shrugged off higher Bond yields, which has helped weaken the safe-haven dollar despite its yield advantage.
Markets have been sleepy all week ahead of today’s core PCE inflation numbers, where we hope to see a spike in volatility. Market expectations see month-on-month inflation to climb to 0.4%, the highest since January 2023. Based on the CPI and PPI numbers earlier this month, the expectation would be for a stronger USD should today's numbers come in higher, given the negative impact that could have on equity market. Whatever happens with the data, FX desks will be hoping for some volatility to break us out of existing trading ranges.
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