USD was broadly weaker yesterday after Federal Reserve (Fed) member Waller suggested that the Fed should favour lowering interest rates in the first half of 2025 should inflation continue to decline. The suggestion is to initiate the first rate reduction in early 2025, ideally in March.
The retail sales report in the afternoon was mixed and thus had a negligible effect on the dollar. With markets currently pricing in 44bps worth of cuts, Fed Waller suggested that, should data justify it, we could see 3 to 4 rate cuts this year.
Earlier in the day Bank of Japan (BoJ) officials suggested that, unless Donald Trump's presidency causes market disruptions, then it's likely they will raise interest rates in next week's meeting.
*Daily move - against G10 rates at 7:30am, 17.01.25
** Indicative rates - interbank rates at 7:30am, 17.01.25
UK retail sales came in weaker than expected for the month of December and even the November numbers were revised lower as well. This, once again, illustrates a slowing economy, adding to an already fragile investor sentiment.
GBP is lower across the board, with markets further raising the odds for three rate cuts this year. Prior to Wednesday’s CPI numbers, markets were pricing in 27bp worth of cuts this year. Now, pricing sits at 68bp instead.
USD is holding firm this morning, despite Fed Waller's dovish comments last night, with markets seemingly wanting to tread carefully ahead of Monday's inauguration of President Trump. CPI numbers from Europe are final numbers from December and unlikely to have any major impact on FX today.
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