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Majors hold ground against USD, GBP awaits GDP numbers early tomorrow morning

Good morning

I was out of the office for much of the day yesterday but I don’t seem to have missed much. USD remains under a little pressure, GBPUSD actually traded above 1.2300 briefly overnight, now 1.2285, while EURUSD is now 1.0610, just 5 pips below the overnight high. GBPEUR remains in the 1.1580 region, it did have a look at 1.1600 overnight but for now that’s a step too far. German inflation numbers out this morning were very much in line with expectations which gave EUR enough support to at least hold its ground.

Bostic was the latest Fed official to voice a preference over leaving rates as they are, saying current policy is restrictive enough and in a good place to bring inflation down. FOMC minutes this evening will hopefully give a little more insight into Fed thinking but I think it is clear that there is a difference of opinions among Fed officials as to whether further rate rises are appropriate. Not great surprise given we are at, or close to, something of a turning point and not everyone will want to turn at the same time. What does seem clear is that rates will be higher for longer and the neutral rate is likely to be higher than it was pre-pandemic.

USDJPY did test back above 149.00 for a bit yesterday before dropping overnight to 148.45. Now back to 148.85, Yen remains weak but there is a lack of USDJPY buying near the highs after the ‘intervention’ last week. Mind you I see BoA have suggested USDJPY could trade as high as 160-165 next year, surpassing the April 1990 highs, if US don’t cut rates and Japan continue their ultra-easy monetary policy. UBS suggest BoJ may increase their core CPI target to 3% from 2.5%, any slight hawkish move by BoJ is likely to lead to some decent upside in Yen. As I have said before though, is is difficult to find the right low-cost and low-risk trade to take advantage of a shift lower in USDJPY but I’ll keep trying. Timing is more important than anything here.

Elsewhere in Asia, China markets were supported by news that China may look to add further stimulus. This comes as it seems Country Garden, a Chinese property development firm, reports it is likely to default on its latest coupon payment, being potentially unable to pay not only when it is due, but also in the official grace period. All is not well in the China property world. I remember seeing images of cities in Cover the past few years that had been built but were empty. I’d wondered whether this was simply anti-China propaganda, but a quick search on the internet suggests there are as many as 50 ghost cities in China with some 64 million apartments empty. That’s some over-devlopment.

Obviously the situation in Israel remains a key topic. With Israeli troops reportedly amassing on the Gaza border, concerns are mounting over contagion in the region. Some concerns from Ukraine that this may take attention away from their struggle after the Russian invasion there, perhaps with some military support being diverted to Israel from the US. Oil prices though are pretty stable, WTI at $86.50, Brent at $88.10, both near the upper end of the range since the Hamas attacks but still off the September highs.

Another reasonably quiet day calendar-wise but early tomorrow morning we will have UK GDP numbers, market hoping for a rebound from last month helped by better weather and less strikes. Tomorrow afternoon brings the all-important US inflation numbers. Time to get any outstanding admin out of the way with India, tournament favourites playing Afghanistan in the cricket world cup on in the background. Well done to England yesterday for a decisive victory over Bangladesh, much improved after their dismal display against New Zealand.

- 09.15 Feds Bowmans speaks

- 13.30 US PPI

- 15.15 Feds Waller speaks

- 17.15 Feds Bostic speaks

- 19.00 FOMC minutes

- 01.00 AUS consumer inflation expectations

- 07.00 UK GDP, industrial production

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