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
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