Market Insight 29-01-2024

Summary

The week began with the Euro (EUR) receiving support from month-end flows and robust corporate demand. GBPEUR retreated from Thursday’s highs, while EURUSD rose above the 200-day moving average. USD trading remained steady despite lower-than-expected core PCE inflation year-on-year and higher personal spending. Mixed data led to a minor uptick in treasury yields and a slight easing of March rate cut expectations.

Looking ahead, there are no significant data points for today. However, the focus shifts to the upcoming week, starting with the EUR. Markets increased the likelihood of an April rate cut last week, weakening the EUR. The outcome may be influenced by Q4 GDP numbers on Tuesday (Expected -0.1%) and Wednesday’s inflation figures; higher-than-expected results could reverse the odds.

For GBP, attention turns to Thursday’s Bank of England meeting. Recent data showing a rise in services inflation suggests the Bank may maintain its stance on keeping interest rates at 5.25% for an extended period. While communication and voting may signal no further hikes, there might be reluctance to hint at a rate cut. As long as the market remains risk-on, GBP is likely to stay well supported.

Regarding the USD, the Fed took a dovish turn in December, but recent Fed speak contradicts the market’s expectations of multiple rate cuts this year. Fed Chair Powell is expected to continue pushing back, especially against the anticipated March rate cut. Key job-related data throughout the week, including JOLTs job openings, the ADP payroll report, and nonfarm payroll numbers on Friday, will influence market expectations. Positive indicators of a robust job market are likely to alleviate expectations of a March cut, resulting in a positive impact on the USD.