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  • richard evans

Weaker US data sends USD lower, but will Fed push back on rate cuts

Good morning


All was quiet at the tail end of last week after what had been a pretty uneventful week as a whole, until weaker than expected US ISM data sent the US dollar lower.  GBPUSD traded from around 1.2600 to a high so far this morning of 1.2680, EURUSD bounced once again off 1.0800 to 1.0850, even USDJPY traded lower from 150.75 to hit 149.85 overnight, but has since regained that 150 level and now sits at 150.20. 


Short positions in Yen are rising according to the latest CTC data, now at the highest levels since 2018.  Back then we saw some sharp falls in USDJPY, but there seems less concern of a repeat such a move for the time being.  I think the cost of carry in being short USDJPY is helping stop speculative downside positions.  If a move does come it could be quite sharp and violet, but as I’ve said before it is all about the timing and one could lose a lot of money while sitting and waiting for a move to come.


Gold was a big mover on Friday, having spent much of the week in a tight $2025-2040 range, it broke higher towards the $2090 area, around those late Dec 2023 highs, and has held up there ever since.  Bitcoin also took advantage of the weaker USD, trading up to the $65,000 area this morning.


While the US dollar is on the defensive, there is still some talk that Fed could keep rates at current levels, or cut rates slower than the market expects.  The market has now come more into line with Feds thinking on rate cuts but there is a chance the Fed dot plot this month looks for later and slower rate cuts.  Still, US equities had a good finish to the week, the S&P 500 closed 5,137, while Asian shares were a bit mixed overnight but Nikkei has broken above 40,000 for the first time.


In other news, UK Chancellor Hunt has played down the chance of decent tax cuts in the budget on Wednesday.  If I were him I wouldn’t bother.  Its not going to be enough to win votes at the election later this year and the country will be better off with a few extra pounds in the bank.  I guess they could cut them which could mean any incoming government would probably have to raise them, making them unpopular, but such tactics are too potentially damaging for the country to be considered sensible.  They wouldn’t, would they?


In sport, Spurs managed a win, although left it a bit late for my liking, which keeps them in contention for a top four finish if any of the other teams have a wobble.  This season’s F1 looks like it could be another parade, with Verstappen victorious and dominant in the first race of the season.


Not wishing to turn this into a forum for a regular gripe and moan, at risk of just sounding like a grumpy old man, I have to say that my comments about the use of phone loudspeakers in public seemed to touch something of a nerve among readers.  Now, my latest gripe.  The use of cutlery.  Now I never claim to be the most sophisticated person or the best parent, but I and my children can use a knife and fork as they are intended.  While eating out at the weekend I was shocked by the number of fellow diners who are unable to hold and use a knife and fork correctly.  It just isn’t difficult, is it?


And just to continue what has become a reasonably regular gripe, I see that Thames Water is looking for a £4bn bailout and also would like to raise bills by some 40% to allow much infrastructure spending while still being able to pay outrageous dividends to its shareholders.  Honestly, this is the kind of thing people should be protesting about.


A limited economic calendar today, the UK budget on Wednesday will be something of a highlight this week and we have the US nonfarm payrolls coming out Friday which, as we know, have real market moving potential.  For now, the sun is shining, although it is still deceptively cold outside.  Stay dry and stay warm!  Spare a though for those in some parts of California and Nevada who are experiencing some pretty hefty snow storms.


-  09.30 EU sentix confidence

-  16.00 Feds Harker speaks

-  23.30 Japan Tokyo CPI

-  00.01 UK BRC retail sales

-  01.45 China caixin services PMI


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