26/07/2024
Written by: Ian Morley
Summary
The US dollar gained ground yesterday as US treasury yields rebounded, reaching 4.15% after two consecutive days of losses. The upward trend of the USD index in 2024 appears poised to continue, supported by ongoing higher highs in price action. GBPUSD experienced a decline but maintained a sideways trading pattern for the month, while EURUSD dipped below its 200-day moving average, suggesting potential further downside.
In the money markets, expectations for rate cuts this year eased as traders considered central bank warnings and inflationary pressures from geopolitical risks.
Our Thoughts: The focus is on PMI numbers to gauge initial estimates of activity in the service and manufacturing sectors for January. European activity is expected to remain in contraction, while both UK and US activity are anticipated to show expansion. This could keep GBPEUR buoyant, potentially pushing through the December high.
The Bank of Canada rate decision is also on the agenda today, with rates expected to remain at 5%. The Bank’s message is unlikely to be overtly dovish, given higher December inflation numbers. Similar to the Fed, a softening of the hawkish tone and openness to potential cuts this year are anticipated.
Chart of the Day: The recent attacks on civilian ships in the Red Sea have significant implications for importing clients. Delays in supplies and increased financial costs, with freight container costs more than tripling since the attacks, could lead to inflation. The USD, impacted by expectations of rate cuts, may benefit if inflation rises, reducing the likelihood of further rate cuts being priced in.