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Currency markets show signs of stability but interest rate uncertainty could drive volatility

richard evans

Good morning

 

All in all the currency markets were pretty stable yesterday, GBPUSD did reach as high as 1.2375 in the morning but drifted steadily back to the 1.2320 area and held around there until this morning when a a bout of USD buying has taken the pair just below 1.2300,  EURUSD has tracked the move, got as high as 1.0455 yesterday but not sits at 1.0395. 

 

GBPEUR is currently 1.1830, unmoved by some press reports that the EU trade chief Sefcovic said EU would consider UK being part of a European customs area and says the ball is really in the UK’s court, adding that relations with the UK are much improved.  Sefcovic did add that EU will need to be careful in talks with US over trade.   Some doubt over the next couple of ECB rate moves, the general feeling is 25bps cuts in Jan and March although ECBs Holzmann has said it may be prudent to wait a bit before making further cuts.

 

GBP is perhaps struggling to get on a firmer footing after Goldman Sachs said they think the market is pricing too few UK rate cuts, and say they see six 25bps cuts by mid-2026 which would leave rates at 3.25%.  The moves would be in response to slow economic growth.  Meanwhile some reports suggest the Fed will struggle to cut rates further given the strength of the US economy and the somewhat persistent inflation running above target levels.  In fact there is a feeling the Fed may be forced to raise rates through 2025.

 

On the subject of rate movements, Norges Bank and CBRT make their rate announcements today.  Norges are expected to keep rates unchanged at 4.5% while CBRT could well bring rates down to 45% from 47.5%. 

 

Yesterday Arsenal put on another decent performance in the Champions league with a 3-0 win.  Man City were not so impressive, losing 4-2 having been 2-0 up.  Of course the major action takes place tonight where Spurs face Hoffenheim in the Europa League.  Spurs desperately need a win.  There is still potential for them to win three cups and get relegated, that would make for an interesting season.  Man Utd take on Rangers this evening. 

 

Overnight we’ll have Japan inflation numbers followed by the BoJ rate announcement.  A 25bps rise is widely expected which would take rates up to 0.5%.  USDJPY currently 156.50, GBPJPY 192.40.  I’d expect a rate rise itself may not be enough to push Yen higher but attention will be on comments in the statement which may give clues as to future rate moves.

 

Have a great day

 

-  09.00 Norges Bank rate announcement

-  11.00 Turkey CBRT rate announcement

-  13.30 US initial jobless claims

-  13.30 CAD retail sales

-  15.00 EU consumer confidence

-  22.00 AUS Judo Bank PMIs

-  23.30 Japan CPI

-  00.01 UK GfK consumer confidence

-  03.00 BoJ rate announcement

-  06.00 BoJ press conference

 

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