USD retreats despite Powell saying Fed in no rush to cut rates further. US CPI out this afternoon.

Good morning

Feds Powell yesterday made it clear that the US central bank will take a very gradual approach to further rate cuts.  He said the economy was in a good place and the concerns over the labour market late last year have dissipated.  Feds Williams added that inflation could take a time to get to Feds 2% target and still sees rates as mildly restrictive, slightly more dovish comments than some of his colleagues in the Fed.  Despite Powell’s rather bullish comments, USD has weakened, with GBPUSD now 1.2460 and EURUSD 1.0370. 

UK Chancellor Reeves has been warned she may need to raise taxes and/or cut public spending amid a generally weak economic outlook.  Weirdly however, a rather bullish NIESR said Reeves is on track to remain within her fiscal rules, they see growth at 1.5% this year and inflation down to around 2.4% for 2025 before hitting target of 2% next year.  These numbers are quite different to those forecast by BoE who look for 0.75% growth and inflation back up to 3.74%.  NIESR did say that only one more 25bps cut by BoE was likely this year.  The Times has focussed on an EY poll which suggests 82% of UK chief executives are optimistic about business for the next 12 months, up from 67% in September.  That’s an interesting number given the unhappiness over recent raises in NIC for firms.

We have seen a move away from safe haven yen buying, helped by talk of a possible ceasefire in Ukraine.  Trump says he is working on a peace deal and I have read that Ukraine may be willing to give up lost ground in order to achieve peace.  USDJPY is up at 153.55, almost 200 points higher than yesterday’s lows.  GBPJPY is 191.25, quite a change from yesterday’s lows which came in around 187.25.

While talk of a possible ceasefire in Ukraine is welcome, the news from Gaza doesn’t make optimistic reading, with Israel warning Hamas that failure to return hostages by the weekend will lead to a renewal of hostilities.

In sport last night, Real Madrid upset Man City with a last minute goal to give them a one goal advantage in the Champions League knockout stage.  City were ahead twice in the match but made a couple of mistakes to hand the win to Real.  Mark will be in a good mood this morning after Leeds beat Watford 4-0, extending their lead in the Championship table to five points. Plenty of other Championship action this evening, we also have the Merseyside derby with Everton hosting Liverpool in the premier league.

In cricket, India are currently 63-1 in the third ODI match of the series against England. They were 6-1 at one stage but little surprise that the partnership of Gill and Kohli has steadied the ship. England are yet to win a match in the series having been beaten by four wickets in each of the first two ODI matches.

Todays brings the long-awaited US CPI inflation release, expectations for headlines of 2.9% for CPI and 3.1% for the core reading, although the risks seem to pointing a little to the upside. Still, if it’s there or thereabouts we may see little in the way of market reaction.  Feds Powell speaks again, a similar speech to yesterday so really its only the Q&A that may bring anything new.  The overall message though will remain the Fed is in no rush to move rates.  We’ll hear from a couple of other Fed officials through the day.

BOEs Greene speaks this afternoon, she is usually on the more hawkish side but did vote for the 25bps cut last week.  We’ll see if she mentions anything about the voting for a 50bps cut, or whether she offers any further thinking on UK rates.

Overnight we’ll have inflation expectations from both Australia and New Zealand.  Both are important but unless they are well away from forecasts I think the ongoing Trump tariff talk will be a bigger factor for currencies for the time being.

Have a great day

-  10.00 ECBs Elderson speaks

-  13.30 US CPI

-  15.00 Feds Powell speaks

-  15.00 BoEs Greene speaks

-  17.00 Feds Bostic speaks

-  17.30 ECBs Nagel speaks

-  19.00 US monthly budget statement

-  22.05 Feds Waller speaks

-  00.00 AUS consumer inflation expectations

-  02.00 NZ RBNZ inflation expectations

-  07.00 UK GDP, industrial production

-  07.00 German HICP

GBP loses ground as BoEs Mann talks of weaker demand, softer employment

Good morning

All fairly quiet yesterday as we’d expected with a limited economic calendar, USD strength has been the main theme but GBP weakness should also be highlighted.  Both GBPUSD and EURUSD are lower against USD, now 1.2340 and 1.0300 respectively, but GBP Selling has been more notable this morning, evidenced by GBPEUR’s drop to 1.1975.  GBP is lower against most other majors. 

The latest shift lower in GBP seems to be attributable to BoEs Mann.  Historically Mann has been on the hawkish side, but at the last BoE meeting she switched to a particularly dovish outlook, calling for a 50bps rate cut when she was usually the one looking to keep rates on hold or even push them higher.  Mann has said that weak demand and worrying employment numbers were deciding factors in her decision, adding that inflation is far less of a risk than it has been.  Talk that Starmer will meet Trump some time in February has done little to help GBP, nor has Reeves suggestion that trade with the US is balanced and therefore the UK will avoid tariffs. 

On Trump, his recent executive orders to block government spending have been ruled unlawful but Trump, Musk and Vance are not happy with that decision and could be deemed to be defying the judicial order.  There is more to come on this, I am sure.  Meanwhile Musk has led a group that is bidding for control of OpenAI in a near $100bn deal.

Gold prices hit new highs overnight, reaching $2,940/oz before slipping back to $2,910.  Question is how long will it take to hit $3,000?  I’d like to look for some sort of upside trade here, looking for a move to that psychological level.  Some of the gold move can be put down to China allowing domestic insurance firms to invest up to 1% of their assets into gold, I suspect official China buying could also be behind the move. 

The potential failing of the Israel/Hamas ceasefire may also be partly to blame. Trump has said Israel should abandon the ceasefire plans if Hamas do not return hostages by the weekend.  He continues to eye Gaza as somewhere that could be under US control and has warned both Egypt and Jordan that he could cut foreign aid if they do not accept refugees from Gaza.

Some suggestion that India have acted to slow INR depreciation, with USDINT dropping sharply from 87.46 to 86.62 this morning.  GBPINR, which less than one week ago was 109.60, is now 107.10, having seen a low of around 107.00.  We’ve seen no confirmation of any official action but I cannot see what else would have instigated such a move.  Indian PM Modi is set to meet Trump in the next couple of days.

Today’s calendar is full of central bank officials, including BoEs Bailey and I’ll be interested to see if he makes any comments that support Mann’s particularly dovish outlook.  Fed’s Powell will testify to Congress this afternoon, always worth keeping an eye on.  I’ll be looking to see if he makes any reference to interest rates.  For now, US rates are not expected to move for some months, tomorrow’s US CPI could support that idea.

Have a great day

-  12.15 BoEs Bailey speaks

-  13.50 Feds Hammack speaks

-  15.00 Feds Powell speaks

-  17.00 ECBs Schnabel speaks

-  20.30 Feds Bowman, Williams speak

USD up after US nonfarms, more Trump tariff talk

Good morning

Fridays US nonfarm payrolls numbers sent the markets on a bit of a wild ride, the USD first weakening on the lower than expected headline, before reacting to the combinations of the revision higher to the previous data, improved unemployment rate and higher average earnings figures.   USD ended the week on a more positive note and  US rate cuts for 2025 are looking less and less likely.

Overnight we saw USD initially trade higher again, news of Trump’s new tariffs on steel and aluminium imports pushing up demand for the US dollar although the impact was short-lived.  GBPUSD had traded down to a low around 1.2360, now 1.2405, EURUSD also gapped lower to around 1.0280, now 1.0310.  GBP has held gains against EUR, with GBPEUR now 1.2030, almost 100 pips off last weeks low.    

USDJPY is currently 152.05 having traded briefly below 151.00 late last week.  Worth noting that USDJPY did not really benefit from the post-nonfarm USD rally, indeed the pair dropped on the open as safe haven Yen buying seemed to be back in favour, despite Japan being one of the countries that will be impacted by the steel tariffs.  GBPJPY currently 188.60 after seeing a low on the open around 187.05, the lowest level since Sept last year.

It’s a limited calendar for the start of the week, Monday and Tuesday is really made up central bank officials speaking, including Lagarde today and Feds Powell’s testimony before Congress tomorrow.  Wednesday brings the highlight of the week, the US CPI inflation report, Thursday sees UK GDP and US PPI, while Friday brings EU GDP and US retail sales.   Not the busiest week perhaps but still plenty to keep us on our toes.

In other news, Trump obviously making headlines with the ongoing tariff talk. He also claims to have spoken to Putin although Russia haven’t confirmed this.  He seems confident he’ll bring a ceasefire to the Ukraine/Russia conflict although I’m not sure how close peace is in reality.  Ukraine would likely have to give up ground already lost to the Russians, something they won’t be happy to do but are probably increasingly prepared for.  Any peace plan would need to include assurances of no further Russian invasion of Ukraine or indeed other countries in the region. 

I am watching the USAID story with interest.  USAID dishes out billions of dollars of overseas aid each year, some of which is spent on vital health programmes, but there have been examples of payments that do seem to be less essential, such as $8m to teach Sri Lankan journalists how to avoid binary-gendered language and $2.5m on electric vehicles in Vietnam.  I’m sure I read that USAID also funded some media outlets, our own BBC being one of them.  There is talk of large-scale fraud, Trump has previously said the aid agency is a criminal organisation.  We all know that aid from the richer nations in the world is important for less developed countries but there seems no doubt a lot of people have got rich off some of the payments.

In sport, Spurs were dumped out of the FA cup although they weren’t quite as bad as they have been in some matches, particularly considering they were up against a decent Aston Villa side.  Pressure still on the Spurs manager but my gut feel is they will keep him and give him a chance once the 12 or so players out through injury are back in action.  Speaking of being dumped out of the cup, Liverpool lost to Plymouth Argyle, makes Spurs loss look far more palatable.

In rugby, England as last managed a decent win, beating France in a rather frantic finish at Twickenham.  France were left ruing some unforced handling errors, while England will now be thinking we’ve played to two toughest teams and if France could beat Ireland we’re surely in with a shout.  A bit too much to hope but I think its possible.

Last night saw the US Superbowl, with Philly Eagles coming out on top. There will be many sore heads in the US today, never quite sure why they have one of their biggest sporting  events late on a Sunday night, I’m sure there must be a good reason for it but it seems pretty absurd to me.

Other than sort, the weekend was a bit of a washout so I used my time wisely and finished season four of Slow Horses.  I’d thoroughly recommend it, if you’ve not seen it.  The performance of Gary Oldman as Jackson Lamb is absolutely superb.  I think a fifth series is being filmed, can’t wait.  Now looking for a new box set to get stuck into.  Recommendations greatly received. 

That’s about all for today.  Lagarde speaks this afternoon, but I think we could be in for a bit of a nothing day as markets await US inflation numbers Wednesday, although we must keep an eye on Trump tariff/trade comments as we know there is more to come from him at some point.

Have a great day

-  14.00 ECBs Lagarde speaks

-  23.30 AUS Westpac consumer confidence

-  00.01 UK BRC retail sales