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  • richard evans

GBP holds gains against EUR but can it break higher still?

Good morning

Yesterday saw some steady USD buying which took GBPUSD down to 1.2650 and EURUSD to 1.0825 in late afternoon, although overnight we have seen a lot of those USD gains given back, with GBPUSD now 1.2710 and EURUSD 1.0870, leaving GBPEUR 1.1695. This is a touch higher than the December highs, and indeed as I type we have just touched 1.1700.

I have seen a couple of banks looking at this as a level to sell GBPEUR, not surprising given we are at the top of the range that has held since Sept 2023, a reasonably close stop above 1.1700 would seem to make sense. Alternatively, we could look at downside options, targeting a move back to the 1.16 area. EU and UK PMIs out this morning could be the catalyst for moves either way, while of course it will be interesting to see what tomorrows ECB rate meeting brings.

We’re in the blackout period for the Fed rate announcement but former Fed official Bullard did add that he sees a rate cut as early as March, even before inflation hits the 2% target. As I recall, Bullard was something of a hawk when he was in office so for him to be so dovish shows something of a change of heart.

USDJPY traded up to 148.70 late yesterday, just a few pips short of Fridays high, but the USD selling overnight has seen the pair trade back to 147.50. GBPJPY got within a few pips of 189.00, just as it did last week, but couldn’t hold those gains and now trades back to mid-187’s. We have half an eye on the 2015 highs in the 195.75 region.

BoC rate announcement today, expected to keep rates unchanged at 5%, as always it will be the tone of the statement that is likely to be of more interest, particularly in light of signs that inflation is still stuck at levels deemed too high. Overall though, I think there has to be more risk that they will err on the dovish side and talk of potential rate cuts some time through 2024. USDCAD is currently 1.3450, an overnight 1.3500 USDCAD call costs just 15 cad pips or so, just in case. This also takes in todays US PMIs and tomorrows US GDP release.

We seem to have survived the latest storm and the next few days certainly look more pleasant with temperatures above 10°c and little in the way of rain. That’s more like it. I’m not sure if the weather has actually been any worse than usual but this idea of naming storms seems to make things seem more harsh. If they just said ‘we’ll have some wind and rain’ it would remove a lot of the panic I reckon.

Congratulations to Chelsea for getting into the EFL cup final, we’ll find out this evening who they will face out of Fulham or Liverpool. The latter has a goal advantage already and are in good form so Fulham are really going to be up against it. Still, anything can happen in the cup. I’m not backing Fulham though.

Have a great day…

- 09.00 EU services, manufacturing PMI

- 09.30 UK S&P services, manufacturing PMI

- 14.45 BoC rate announcement

- 14.45 US S&P services, manufacturing PMI

- 15.00 BoC monetary policy report

- 15.30 BoC press conference

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