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USD higher as Fed push back on early rate rises, BoE up next

Good morning


January is done and dusted, those who held out for a dry January now have a big decision to make, to keep going or to get stuck in on Thursday evening. 


It was the Fed making the difficult decisions yesterday evening, they decided to leave rates unchanged, no surprise there.  The wording in the statement regarding potential rate rises was removed, but Powell did push back on the idea of a March rate cut, preferring instead to wait until they are more confident that inflation is moving sustainably towards 2%.  Goldman Sachs were the quickest to move their forecast of a cut from March to May, while JPMorgan think June is more likely.     


All this resulted in a stronger US dollar, GBPUSD is down at 1.2650, well off the 1.2740 highs we saw yesterday, but still within this 1.26-1.28 range that has held since mid-Dec,  EURUSD is down to 1.0790 leaving GBPEUR broadly unchanged in the 1.1725 area. 


AUD seems to be struggling more than others, perhaps the weaker housing numbers and softer NAB consumer confidence data overnight can be held at least partly responsible.  GBPAUD is up at 1.9375, it has been within a few points of the Jan 17th/18th highs just around 1.9400, beyond there we’re looking at levels not seen since Sept 2023.  AUDUSD is testing support around 0.6530, this level has been tested several times since November 2023 and has held, but tech traders will be looking at charts suggesting a return to the 0.63s could be on the cards.


OPEC meet today, oil has been ticking higher through January amid fears of escalation in the Middle East, WTI is now $76.00, Brent is $81.00, both a couple of dollars off the highs seen earlier this week.  Not sure what OPEC will do, they surely prefer higher oil prices and I wouldn’t be surprised to see a continuation of production cuts already in place, if not further cuts. 


It is the turn of BoE for their rate decision today.  They’ll leave rate unchanged, that’s pretty much certain, but the key is whether they follow ECB and/or Fed in taking further rate rises pretty much off the table.  Of the three central banks, I think it is the BoE who have the hardest job at the moment.  Look for how the members vote though, it is suggested that this could be the first meeting since September 2021 where no one votes for a rate rises.  Meanwhile Chancellor Hunt has downplayed the chances of large tax rises in March, this follows recent comments from IMF that UK should refrain from such tax cuts.


We’ll have EU inflation numbers this morning.  German HICP data yesterday came in a touch softer than expected, it is quite possible the EU release will follow a similar theme.  We also hear from ECB’s Lane who is likely to echo his previous comments that inflation is not the risk it has been but, like the Fed, he needs more confidence that inflation can sustain moves towards its target.


Spurs managed a nervy win over Brentford yesterday to put them back in the top four, only three points behind Arsenal.  Now they just have to stay in the Champions league positions.  Liverpool extended their lead at the top of the table with a win over Chelsea who still don’t seem to be firing on all cylinders.  Its transfer deadline today, there hasn’t been much in the way of movement so far, some suggestions we’ll see some last minute deals but not close to the level we’ve seen in the past.  Its actually Spurs who seem most likely to spend, being linked to both Bournemouth’s Solanke and Chelsea’s Gallagher. 


Elsewhere in sport, for those who wake up early, the second test match against India will begin in the early hours of tomorrow morning.  England will be seeking a second win, India will be out for revenge.


Have a great day…


-  10.00 EU HICP, unemployment

-  11.30 ECBs Lane speaks

-  12.00 BoE rate announcement

-  12.30 BoE press conference

-  13.30 US initial jobless claims

-  14.30 CAD S&P manufacturing PMI

-  15.00 US manufacturing ISM

-  22.45 NZ building permits



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