Welcome back readers! Following some consolidation of USD gains over the festive period, the greenback kicked off 2025 continuing to carve out new gains. This has led to GBPUSD dropping to its lowest since May 2024 and EURUSD getting closer to that parity mark, hitting its lowest levels since November 2022.
On Friday morning, the greenback experienced a slight dip, but by the end of the day, it regained its momentum, buoyed by unexpectedly robust manufacturing PMIs for the second consecutive month.
GBP started the first day of 2025 negatively as markets continue to take stock of the headwinds facing the UK economy this year with some consolidation of this weakness on Friday
*Daily move - against G10 rates at 7:30am, 06.01.25
** Indicative rates - interbank rates at 7:30am, 06.01.25
We start the week with a focus on Europe and the release of inflation numbers.
Due to the base effects on fuel prices, Germany's numbers are expected to show an uptick today, as are France’s, and the CPI numbers for the EU as a whole. However, given that the overall disinflation picture looks poised to persist, this should do little to affect the market continuing to price in the expected 100bps worth of rate cuts by the European Central Bank (ECB) this year.
Also this week, we have US job data points, throughout. Friday's nonfarm payroll numbers will be the highlight. Markets are currently expecting 153,000 new job additions for December, and the unemployment rate is expected to remain at 4.2%. Market pricing since the Federal Reserve (Fed) meeting in December is now suggesting only 43bps worth of rate cuts over 2025 and, as long as job numbers aren't damning, we would expect USD to remain well supported over the medium term.
As traders return from holiday, the USD is gently easing into the week, reflecting the renewed flow of market liquidity. Any USD correction is likely to be short-lived due to the narrative of a hawkish Fed and the proximity of Donald Trump's inauguration, which will likely keep the USD supported in the medium term.
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