Eyes turn to BoE, how many members will vote for a 25bps cut

Good morning

More USD weakness for much if the day yesterday, GBPUSD reached a heady 1.2550 in the morning although the pair did drift off in the afternoon, preferring to focus on the stronger than expected ADP employment number than the lower US ISM services PMI headline.  It ended the London session around 1.2515.  EURUSD reached 1.0440 at one stage yesterday but was also lower a touch by the close, around 1.0420.  EUR made a small bit of ground on GBP through the day, reaching 1.2000 at one stage although it was 10 pips or so up from those lows by the close. 

The US dollar remained weak until the early hours of this morning when USD buyers remerged and sent both GBPUSD and EURUSD lower once again, reaching 1.2455 and 1.0365 respectively.  Some are putting this strength down to comments from US Treasury Secretary Bessent who said Trump was not calling for Fed rate cuts.

USDJPY saw more impact from the weaker ISM PMIs, the pair traded down to 151.80 overnight, helped by further talks of faster rate rises through 2025, although has since recovered to 152.60 on this mornings USD push higher.

Aussie trade surplus was healthy but at AU$ 5.1bn was well below expectations which were in the AU$7bn area.  The previous months data was revised lower but overall the impact on AUD has been minimal, AUDUSD falling to 0.6260 more in line with this USD strength, while GBPAUD has slipped to 1.9900 from an overnight high of 1.9950.

Trump has explained his recent Gaza announcement in perhaps better detail, suggesting the citizens of Gaza only need to relocate temporarily while US go in, clear the rubble and rebuild until the time is right for them to return.  Trump’s attention is also on Ukraine where he is hoping to broker a peace deal that is likely to give Russia the ground it has already taken with an assurance somehow that Russia will not attack again.

Today brings more EU retail sales and US jobs data, initial claims and Challenger cuts, but the main event will be on BoE where a 25bps cut in rates to 4.5% is widely expected with a near unanimous 8-1 vote.  It’s not easy for BoE, lower growth and an uncertain economic outlook should make a rate cut a simple decision but inflation still persists and there is a chance we’ll see more BoE officials siding with Mann who is likely to dissent, calling for no change in rates.  Regardless, I’d expect BoE to signal some caution over further rate cut expectations.

Through the afternoon we’ll have some central bank speakers from ECB and Fed, then in the early hours of tomorrow morning we’ll have the latest RBI rate announcement.  A 25bps cut to 6.25% looks on the cards.  INR has weakened since the turn of the year, with USDINR moving up from 86.50 to a high of almost 87.60, while GBPINR has been more volatile, seeing a range between 104.50 and 109.50, give or take a few points.  Indeed this week alone we have seen a move from 106.10 up to those mid-109s. 

Newcastle beat Arsenal last night to take them into the League Cup final, their opponents will be decided this evening as Spurs take on Liverpool/  Spurs have the advantage of a one goal lead from the first leg but we all know there is quite a vast difference between the current performance levels of each side.  Liverpool do need to score, I don’t think that will be too difficult for them but the longer Spurs can hold out the more risks Liverpool may need to take.  You  won’t be surprised to hear I’m not overly confident.

Ah, and Leeds extended their lead at the top of the Championship with a win over Coventry last night.  Mark will be ion a good mood today if anyone has any small, annoying balances they need us to take care of….

Have a great day

-  10.00 EU retail sales

-  12.00 BoE rate announcement

-  12.30 BoE press conference

-  12.30 US challenger job cuts

-  13.30 US initial jobless claims

-  15.00 CAD Ivey PMI

-  16.15 ECBs Nagel speaks

-  19.30 Feds Waller speaks

-  20.30 Feds Daly speaks

-  22.00 BoCs Macklem speaks

-  04.30 RBI rate announcement

USD continues to look soft as Trump takes foot off tariff pedal for now

Good morning

Yesterdays US JOLTS job report came out on the weaker side of expectations which helped push USD lower.  This particular release isn’t really an indicator for the nonfarms which are still expected to show a decent rise on Friday, but perhaps gives us an idea that some softening in the US labour market can be expected.

So, GBPUSD is back to where it was around a week ago, in the high 1.24s, while EURUSD is back where it was just last Friday, around 1.0390.  USDCAD has seen a rollercoaster over the past week, from 1.4340 or so all the way up to almost 1.4800, and now back down again to the low 1.43s.  It’s almost as though Trump’s recent tariff announcements didn’t take place at all.  Worth remembering though that, for the time being at least, tariffs are only paused rather than cancelled, so what will happen in a months time remains to be seen. 

Trump isn’t just about tariffs.  He is now talking about taking over Gaza as well as Greenland and even possibly Canada.  On Gaza, he said he’d resettle Palestinians in parts of Egypt and Jordan, something neither country is happy with, let alone the Palestinians themselves.  An interesting comment from Tump, that’s for sure.  Elsewhere, Trump and Xi won’t be talking as planned, that was cancelled after China imposed retaliatory tariffs on certain US products.  Hong Kong and China markets reopened after a week or so holiday, no surprise that equities there were marked lower.  

What I do find interesting is that US postal service has suspended parcels from China and Hong Kong until  further notice.  I’m not sure of the details here but I know I’d be pretty unhappy if I’d ordered and paid for goods that were then blocked.  I presume the recipents will eventually have to pay some sort of fee to have their packages delivered.

We’ve still not heard what tariffs Trump will impose on the EU, if any. While Mexico and Canada have fallen into line with Trump’s demand pretty easily on order to postpone tariffs, it may be harder for the EU to do so as and when they come.  With EURUSD now looking at 1.0400, and US rate cuts looking less likely, I do wonder whether we should be looking at downside EURUSD trade ideas, just in case.  I’ll do some investigation, let me know if you’re interested. 

In Japan, talk of more rate rises this year, combined with the generally softer USD, has sent USDJPY down to almost 153.00, the lowest level since mid-Dec.  GBPJPY is 191.55 as I type.  And overnight, NZ jobs data didn’t make great reading, with the unemployment rate ticking up to a four year high of 5.1% although NZD is actually off the lows against GBP at 2.2010, as is their neighbour AUD which is currently hovering around the 1.9900 area.

The UK is facing a tough time right now.  It is reported that the OBR may downgrade UK growth forecasts from 1.1% to close to 0.7% for 2024, and from 2% to 1.3% for 2025.  Not great reading for Reeves who has been warned she’ll most likely have to cut spending or raise taxes.  Also not making good reading is this idea we may pay Mauritius some £18bn over the Chagos Islands, almost double the initial number, although Starmer has denied this is the case.  Starmer has been under a great deal of pressure recently, his meeting with his oral coach over lockdown is in focus at the moment but there are plenty of other issues the general public are not happy with.

Football this evening sees Newcastle take on Arsenal in the second leg of the League Cup semi-final.  Newcastle have a 2-0 lead from the first leg but Arsenal have been in fine form recently and will be desperate to overturn that deficit.  Spurs take on Liverpool in the next semi-final tomorrow.  Meanwhile Leeds Utd, who as you know I have something of an obligation to mention, could extend their lead at the top of the Championship with a win over Coventry this evening. 

So, US PMI numbers and a few Fed officials are the main event today, we do also have the US ADP employment change data this afternoon which is the one that has previously been talked about as a nonfarm indicator although I’m not sure its ever been very good at that.  Tomorrow we’ll have the BoE rate announcement where it is likely we’ll see a 25bps cut. 

As I finish this, GBPUSD has popped just above 1.2500, EURUSD just above 1.0400, leaving GBPEUR around 1.2020. 

Have a great day…

-  09.00 EU composite PMI

-  10.00 EU PPI

-  13.15 US ADP employment

-  14.00 ECBs Lane speaks

-  14.45 US S&P composite PMI

-  15.00 US ISM services PMI

-  18.00 Feds Goolsbee speaks

-  20.00 Feds Bowman speaks

-  00.30 AUS trade balance

-  00.30 Feds Jefferson speaks

Trump tariff pause settles markets back to where they started...for now...

Good morning

Quite day yesterday, USD pushing higher on the Trump tariff talk over the weekend, only to reverse much of the moves after Trump announced a one month pause in tariffs on Mexico and Canada.  It is almost as though yesterday never happened.  GBPUSD is now 1.2410, EURUSD 1.0310, USDCAD 1.4435, some 350 pips off yesterdays highs.  Quite where this leaves Mexico and Canada remains to be seen.  Mexico have agreed to boost border guards, and I think Canada have agreed more border work, but Canada are angry at the US action, with many calling for a complete boycott of US products.  This boycott could go as far as Musk’s US$100mn Starlink contract with Ontario. 4th March is the next tariffs deadline.

China have been hit with additional 10% tariffs and as yet I see no reprieve for them, although there is a suggestion talks with China could take place soon.  They have retaliated with 15% levies on US coal and LNG products.  Trump has even persuaded Panama to ditch China’s Belt and Road deal.  China markets have been closed for holidays, they will reopen tomorrow.  Meanwhile Australia say they are prepared for something of a trade war.

EU preparations for tariff retaliation are well under way.  A list of US products to be hit by tariffs is being drawn up and targets those products made in Republican-run states that are deemed vulnerable in 2026 midterm elections.  Whether this is enough to appease Trump remains to be seen.  The issue with EU/US is that it will be difficult to deliver what Trump wants.  Mexico and Canada can help with the border issues, but Trump wants EU to buy US cars.  Trouble is, no one really wants them over the BMWs, Audis and Mercedes that are available.  Not sure there is an easy fix to be had. 

Meanwhile, Starmer has been rubbing shoulders with EU leaders but has made it clear he won’t take sides in a US/EU trade spat.  This comes as support for UK’s Reform party hits 25% in a recent poll, with Labour now down at 24% and Tories at 21%. 

USDCAD was 1.4675 at expiry time which, for the 1.4700/1.4600 calendar spread I’d mentioned Friday was a pretty decent level.  With nothing done on the 1.47s, the 1.46s we were left with were worth around 160 cad pips, giving a healthy profit, although of course looking at the market now, selling spot against the option would have been more profitable by far. 

We have heard from a couple of Fed officials over the past day or so, both of whom warned against further rate cuts, a theme I think we are likely to see more of.  Bostic and Goolsbee both want to see the impact of 2024’s 1% rate cuts, plus the uncertainties emanating from Trump’s trade battles and possible inflation.

In sport, Chelsea managed to beat West Ham which put Chelsea back into the top four and also allowed Spurs to retain the 14th spot in the table.  Spurs have signed a couple of players in the January transfer window in an attempt to bolster their injury depleted squad, including Mathys Tel from Bayern Munich.  He is supposed to be the real deal, although I can name several players who have come to the Premier League from the Bundesliga and have failed to replicate the form they showed there.  Fingers crossed!

I must apologise to Mark for failing to mention Leed’s 7-0 win over Cardiff at the weekend.  Leeds are still top of the Championship, only by a couple of points but looking at their performances it is difficult to see how they wouldn’t earn one of the automatic promotion spots come the end of the season.

Onto today and it’s possibly a quiet morning but come the afternoon we believe Trump has more executive orders to announce, then we have the release of the week’s first tranche of US job data, this time in the form of JOLTS job openings.  We hear from a few Fed officials through the day, while tonight we’ll have the latest unemployment numbers from NZ. 

Have a great day…

-  14.00 Trump executive orders

-  15.00 US JOLTS job openings, factory orders

-  16.00 Feds Bostic speaks

-  19.00 Feds Daly speaks

-  21.45 NZ unemployment

-  00.30 Feds Jefferson speaks

-  01.45 China caixin services PMI