USD was the biggest loser yesterday with markets reducing their long position on the currency, with yesterday's European Central Bank (ECB) meeting perceived as being less dovish by traders. The ECB cut rates by 25bps (in line with expectations), with a unanimous decision amongst policy makers suggesting the consensus is that inflation will return to target. There were no changes to forward guidance as the ECB sticks to its meeting-by-meeting approach. JPY was the biggest climber of the day following Deputy Governor Ryozo Himino’s comments from earlier in the day that the Bank of Japan (BoJ) will continue to hike interest rates if its economic and inflation outlooks are realised.
Fourth quarter GDP in the US missed expectations of 2.6%, coming in at 2.3% and the core PCE inflation over that same period rose in line to 2.5% from 2.2%.
*Daily move - against G10 rates at 7:30am, 31.01.25
** Indicative rates - interbank rates at 7:30am, 31.01.25
On the data front, French inflation numbers for January came in lower than expected this morning, with Germany's numbers released later today. Any signs of 'sticky' inflation and we could see markets reduce the number of rate cuts expected by the ECB this year, which would be EUR positive. The same can be said with the core CPE number from the US but given yesterday’s Q4 imprint was in line with expectations, we are not expecting much deviation in December's number
For USD volatility, focus will primarily be on whether the Trump administration imposes those 25% tariffs on Canada and Mexico that were mentioned last week. Donald Tump reiterated his plans for tariffs overnight, resulting in a weaker CAD and MXN this morning. Technically, Trump said he will look to deliver these tariffs by the 1st February 2025 but markets will be watching closely for any further tariff headlines. Next Monday's open will be very interesting! Have a good weekend, all.
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