05/12/2025
Market activity was mixed yesterday as traders awaited significant data releases later in the week. Despite central bank speakers like Fed’s Bowman and ECB’s Wunsch expressing reluctance towards immediate rate cuts, FX rates remained largely unaffected. EUR buying was observed as a hedge against potential disappointing UK data, while clients showed interest in placing Limit Orders on GBPUSD and EURUSD ahead of today’s US inflation figures.
Trading activity remained subdued across European markets as investors awaited updates on US inflation. Notably, the New Zealand Dollar exhibited strong performance following a hawkish stance from the RBNZ. Clients displayed heightened engagement ahead of key data releases, particularly concerning GBPEUR, amidst concerns of breaching 2023 highs. Activity on GBPUSD and EURUSD remained balanced, with investors awaiting the outcome of the US inflation figures.
Yesterday’s standout was the depreciation of the Japanese yen (JPY) following remarks from the deputy governor of the Bank of Japan (BoJ), signalling a cautious approach to future rate hikes post-negative rates. The remaining G10 currencies experienced subdued movement. Central bank officials, such as Fed’s Barkin and ECB’s Holzmann, resisted market expectations of rate cuts. Meanwhile, the Reserve Bank of New Zealand hinted at potential interest rate hikes due to anticipated labour market strength, resulting in a 0.5% decline in GBPNZD overnight.
Yesterday saw a continuation of market trends, with increased risk appetite pushing markets higher, nearly reaching the significant milestone of 5,000 for the S&P 500. GBP maintained its upward trajectory while USD saw marginal declines across various currencies. Remarks from Kashkari, Kugler, and Collins of the Fed had minimal impact.
Increased risk tolerance dominated the market today, leading to a decline in yields and a weakening of the USD against various currencies, including a rebound in GBP. Earlier, UK construction PMIs showed improvement, following yesterday’s upward revision of the services PMI figures. However, caution is advised regarding GBP due to recent comments by BoE chief economist Huw Pill suggesting potential rate cuts, echoed by BoE member Swati Dhingra, who highlighted significant economic risks if interest rates remain elevated. Although money market pricing on UK rate cuts remained largely unchanged, there appears to be a dovish sentiment emerging among some BoE members.
The US dollar surged to new highs after remarks from Fed Powell and better-than-expected ISM services data for January. The likelihood of a rate cut in March plummeted to 0.16%, causing a decline in equities. Despite upbeat UK services PMI figures, the British pound struggled amid overall market caution. GBPUSD breached key support levels, raising the prospect of revisiting November lows. Meanwhile, EURUSD revisited its December low before finding support.