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Lagarde gives some hope of early ECB rate cuts

Good morning


The single currency fell to new 2024 lows after the ECB rate announcement yesterday.  ECB kept rates on hold as widely expected but Lagarde failed to strongly push back against the idea of early rate cuts which the market took as a signal that an April cut may be on the cards.  Indeed, the market is now pricing in around 75% chance of a cut in April.  We’ll hear from a couple of ECB officials later this morning, one of whom, Kazaks, is something of a hawk so we will not be surprised if he warns against early rate cuts.


EURUSD has seen a low of 1.0815, now 1.0825, while GBPEUR broke up through 1.1700 and has held ever since, now 1.1725.  GBP did follow EUR lower against USD although to a lesser extent, GBPUSD is currently 1.2690, a stronger than expected US GDP number yesterday helping the USD push a bit higher. 


BoJ minutes overnight showed officials saw a need to debate rate rises to move away from negative rates.  Japans FinMIn Suzuki said BoJ and government are working together to bring inflation to target.  With a softer than expected Tokyo CPI print overnight, yen failed to make any decent gains despite the hawkish minutes that offer greater potential for a move higher in rates.  USDJPY now 147.85, a level that has acted as resistance for the last day or so.   


China are reported to have stepped in to try to prevent Houthis attacking shipping in the Red Sea.  China have apparently said that if China interests are harmed in any way, it will impact their business with Iran.  Obviously with so many goods coming from China, any shipping delays can be seen as harming China’s interests.  Whether this makes any difference remains to be seen but I’d imagine it could have more clout than the US and UK military action. 


The UK government has warned there is around 25% Russia will attack a UK ally by 2025.   Meanwhile, US military experts are reportedly watching North Korea for signs of increasing military activity against South Korea, including lethal action.  They are concerned that North Korea are becoming increasingly hostile. 


US PCR core deflator, one of the Feds preferred inflation indicators, will be the key today in an otherwise thin calendar.  The PCE has been showing lower readings than CPI, the core is expected to be around 3% today.  Anything much lower could see the US dollar weaken into the weekend, but similarly if the data disappoints to the upside it could add to the mild USD strength we saw yesterday.


A bit of sport to look forward to this weekend.  First up, England are taking on India in the first of a five test series.  England scored a rather underwhelming 246 in their first innings, India have surpassed that and will be looking to build a decent lead.  Not looking good.   The main event for me will be Spurs v Man City this evening in the fourth round of the FA cup.  Not a great surprise that City are firm favourites but Spurs have a bit of history of doing well against them so there is a glimmer of hope. 


Have a great weekend, looks like we will be in for some calmer and milder weather over the next few days so get out and enjoy that.  For those on dry January, you have one more weekend to hold out.  I think my January is best described as damp, rather than dry.



-  09.30 ECBs Kazaks, Vujcic speak

-  13.30 US core PCE, personal income/spending

-  15.00 US pending home sales



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