ECB, SNB to cut rates today, question is by how much?

Good morning

US inflation came out bang in line with expectations yesterday which initially sent USD a touch lower but it wasn’t long before that move reversed and USD pushed higher.  GBPUSD had been up to 1.2780 but slipped to 1.2740, EURUSD traded from its 1.0535 high to 1.0485, and GBPEUR ticked higher once again to 1.2150.  USDJPY took advantage of the slightly stronger USD, trading up to 152.60 helped by reduced expectations of a BoJ rate rise this year.  As I type GBOUSD is back up to the 1.2770 area and EURUSD has made it back above 1.0500, now 1.0520,

BoC did cut rates by 50bps to 3.25%, CAD actually managed to make small gains against USD after the announcement, with USDCAD moving down from 1.4180 to 1.4135.  GBPCAD traded down 100 pips from 1.8105 to 1.8005 but has since worked its way back up to 1.8065 or so.  BoC did signal a return to more gradual rate cuts which could mean either cuts of 25bps or perhaps more pauses in cuts through 2025. 

Aussie employment knocked those who were starting to think a Feb rate cut was on the cards, coming in stronger than expected with full time employment up over 52,000, while the unemployment rate dipped to 3.9% when it had been expected to rise to 4.2%.  AUD jumped higher, with AUDUSD now 0.6420 from a low yesterday of 0.6340, while GBPAUD dropped from 2.0000 before the announcement to 1.9880. 

Gold traded up to $2,726 overnight, surpassing the Nov high and now casting a beady eye on the October highs.  There has been talk of a Hamas/Israel ceasefire deal, in the past this would probably have been enough to send gold lower but with global unrest at quite elevated levels, and of course with China still adding to their holdings, we can understand why gold prices remain firm.

Today brings the ECB rate meeting at which it is expected we’ll see a 25bps rate cut, a move that has been forecast for some time now and it would be a huge surprise if we saw anything else.  It is also unlikely Lagarde will say anything too out of the ordinary, we are expecting more of the usual ‘gradual rate moves and data dependency’ sort of talk.  EUR still struggling with French and German government issues, as German Chancellor Scholz did request a confidence vote which could take place this coming Monday.  Ukraine war, NATO funding and Russian meddling in European affairs is also weighing on the single currency.

This morning we also have the SNB rate announcement, a 25bps cut is expected which would take rates to a lowly 0.75%.  There has been some talk of a larger 50bps cut which could mean we see a little CHF strength on a 25bps cut.  GBPCHF now 1.1265.

Today also brings the next US inflation number, this time in the form of PPI which usually comes and goes with little fuss but can move the markets from time to time, particularly coming so close as it is to next weeks FOMC rate meeting.   

Arsenal won their champions league match yesterday but Man City lost yet again, this time to Juventus.  Spurs face a touch trip to Rangers this evening while Chelsea make the 16 hour round trip to Kazakhstan where they will face Astana in temperatures that could get down to -10°c.  You’re truly a real fan if you make that away trip!

Low temperatures are unlikely to be an issue for the 2034 world cup, which will be held in Saudi Arabia.  I’d imagine it will be similar to the Qatar tournament which went well but not without controversy and many difficulties for travelling fans.  Still, they have ten years to get it right, I presume it’ll be held in our winter again given the excessive heat during the summer.   

Finally, the GCHQ quiz was disappointingly straightforward yesterday.  I struggled with one questions but worked out the final piece of the puzzle by a matter of deduction.  I did feel a bit smug but then had to remind myself this is really designed for school children.  There are other puzzles on the GCHQ website to try which serve to remind me that I’m not quite as good at these things as I perhaps imagine.

Have a great day

-  08.30 SNB rate announcement

-  09.00 SNB press conference

-  10.30 INR CPI

-  13.15 ECB rate announcement

-  13.30 US PPI, initial jobless claims

-  13.45 ECB press conference

-  21.30 NZ business PMI

-  23.50 Japan Tankan

-  00.01 UK GfK consumer confidence

-  07.00 UK GDP, industrial production

Focus on US CPI today, EUR struggling amid political turmoil

Good morning

Quiet day yesterday, USD up a bit, GBPUSD traded down to 1.2725 and EURUSD hit 1.0500, while USDJPY traded up through 152.00 which brought GBPJPY up to 194.00. 

EUR is struggling at the moment.  We’ve seen political issues in France, now the German Chancellor Scholz is reported to be about to request a confidence vote today which, if he loses as is expected, would lead to new elections in February.  EURUSD is around 1.0490, GBPEUR now at 1.2140, the highest level since March 2022 at which time we go up to around 1.2190.  Beyond there we’re looking at levels not seen since as far back as 2016. 

Through 2015 and part of 2016 GBPEUR traded as high as the mid-1.44s, I don’t want to be one of those who makes outrageous market calls but Euro sellers should just be aware that although we are at or near multi-year highs, this is not really unchartered territory and I’d suggest some caution just in case a larger move does develop.  On the positive side the forward points remain firmly in favour of EUR sellers so although the spot rate looks undesirable, forward rates do ensure some discount.  

EUR buyers on the other hand should be sitting pretty and even though forward points are against them they could probably still hedge forward at something around 1.2000 if they didn’t want to go too far out.

Aussie employment numbers overnight were on the weaker side, sending AUD lower again as rate cut expectations for Feb build.  GBPAUD spiked as high as 2.01 this morning although is now a touch lower at 2.0050.  NZD is also weak, this morning NZDUSD traded as low as 0.5765, a two year low, while GBPNZD is only a few pips short of 2.21, the highest since Feb 2016. 

I mentioned gold earlier this week, at the time it was $2,645, off the lows helped by news that China had started to add to their vast holdings once again.  It has continued to trade higher, reaching a high of now $2,704 overnight and with the Chinese buying plus the ongoing issues around the world including Ukraine, Gaza, Syria, Iran and Taiwan I would not be at all surprised to see a retest of the Nov highs ($2,720) initially with half an eye on the Oct highs around $2,790, particularly if we were to see a dovish Fed next week.

US inflation numbers will be the highlight today, potentially giving a clue as to the Feds rate decision next week, especially as we are now in the Feds blackout period.  Today also brings the BoC’s latest rate announcement, a 50bps cut is expected, following a 50bps cut in October and 25bps at the three preceding meetings.  The 50bps cut must be priced in, so the key will be whether BoC mention any slowdown in pace or size of rate cuts.  USDCAD is now 1.4165 having traded a high of 1.4185 yesterday, the highest we’ve been since April 2020.  GBPCAD hit 1.8090 yesterday marking the highest level since April 2018.

So far then, GBP is making highs against various currencies, including the Euro.  The question is whether British football teams can also reach highs against their European counterparts.  Well, Liverpool won their Champions League match last night, now the only team to win their opening six matches.  Aston Villa also won to boost their hopes of reaching the knockout stages.  Arsenal and Man City play this evening. 

I’ll be in trouble with Mark if I don’t mention Leeds Utd, who have climbed again to the top of the Championship after a 3-1 win over Middlesbrough last night.  Sheffield Utd need to beat Millwall this evening, never an easy place to go, if they wish to regain the top spot.

If you find any spare time today, GCHQ will be releasing their annual Christmas Challenge.  This is really designed for schools but don’t be fooled, it isn’t always simple and I have learnt that working in a team greatly increase your chances of success given each question has a slightly different theme.  I always like to think I’m going to do well but it doesn’t always work out that way.  Take a look at the GCHQ website, avoid searching for the answers online and see how you get on.

Have a great day

-  13.30 US CPI

-  14.45 BoC rate announcement

-  15.30 BoC press conference

-  19.00 US monthly budget statement

-  00.30 AUS unemployment

AUD lower after less hawkish RBA, very limited calendar today

Good morning

It was a quiet day yesterday, GBPUSD traded a range of 1.2770 to 1.2790, while EURUSD was mostly between 1.0560 and 1.0585.    GBPEUR continues to hold just below 1.2100.   We did see USDJPY push higher throughout yesterday, from an open around 149.85 to a high of 151.30, which dragged GBPJPY higher to the 193.25 area, the highest its been for a couple of weeks.  

This morning we’ve got a marginally higher USD, with GBPUSD at 1.2750 and EURUSD 1.0545.  USDJPY is also a touch higher at 151.70 although GBPJPY is still around 193.20, with 193.40 marking the highs so far.  The weaker Yen comes as some banks adjust their BoJ forecast to a ‘hold’ next week, having previously looked for a rate rise.

Overnight RBA did indeed leave rates unchanged as widely expected but a slightly more dovish statement gave hope to those looking for a rate cut.  RBA said  inflation is still too high but seem more confident that inflationary pressures are declining.  Markets are starting to look at a possible rate cut as soon as February, having not really considered a cut until May 2025.  AUD is lower with GBPAUD back up to 1.9960 and AUDUSD down at 0.6830.

China shares opened sharply higher led by hopes that new stimulus plans could be announced later this week.  The moves higher did unwind gradually overnight but most Chinese stocks still ended higher.  The move higher comes despite disappointing export data from the latest China trade numbers.  Plenty of trade talk doing the rounds, with China said to be limiting sales of components for drones that are pretty key to Ukraine’s war efforts, while there is a suggestion that DJI, a big Chinese drone manufacturer, could be banned from selling their products in the US.  Meanwhile Taiwan has raised concerns about the ninety or so Chinese military ships in nearby waters.  There seems to be a complacency over China’s intentions for Taiwan and I don’t like it. 

Korean equities also pushed sharply higher by some 2.5% overnight and have held those gains although after Mondays declines this rally still doesn’t bring prices up to Friday’s close. A step in the right direction perhaps.  Press reports suggest there is an arrest warrant out for President Yoon.

Eyes very much on Syria where rebels are celebrating the collapse of the Assad regime, however it is still very unclear how Syria will look once the dust settles.  Both US and Israel have attacked various armed factions who could join fight for control of Syria.  We have seen the effects of ousting dictators from their positions in countries like Libya and Iraq, none of which went particularly well. 

We all know footballers earn significant sums of money, but that isn’t the only sport where earnings are high.  Top golfers and tennis players can earn vast sums.  But I have seen a baseball player who is reportedly signing a deal with the NY Mets that totals some £600 million over fifteen years.  That’s £40 million/year, or £770,000 every week for fifteen years! 

You’ll notice there is no calendar today, that isn’t because i have forgotten, but rather there is just nothing of note out.  Tomorrow brings US inflation and the latest BoC rate meeting so enjoy the relative calm for now. 

Have a great day