USD holds gains ahead of US inflation data as market looks for fewer Fed rate cuts in 2025

Good morning

Yesterday morning was something of a non-event, a perfect time to get some admin finished.  All was calm and quiet until the afternoon, when we saw another bout of USD buying yet again.  GBP was impacted to a greater extent, with GBPUSD trading down from 1.2825 to 1.2725, EURUSD to 1.0595 which meant GBPEUR dropped from its highs around 1.2080 to 1.2015.  USDJPY took advantage of the stronger US dollar, trading up to 154.80. 

The renewed USD buying came amid ongoing talk that Fed will have to slow the pace of rate cuts, and move them less than previously expected, in response to inflationary effects of potential tariffs.  With ECB still on a fairly dovish rate path, I have seen some suggestions that EURUSD could hit parity by the end of 2025, a level we’ve not seen for two years.  It is fair to say we’d thought a Trump win would lead to a higher US dollar but if I’m honest I didn’t think it would go

Things were generally more stable overnight, GBPEUR did dip below 1.2000 several times but is currently just above at 1.2010.  USD has held most of its recent gains, GBPUSD is 1.2735, EURUSD 1.0600 and USDJPY now up at 155.20.  Still nothing from Japanese officials regarding Yen weakness, as we know they cannot reverse this stronger USD theme but I am surprised that we have not heard a little bit more from them in terms of verbal intervention.

Fed officials yesterday were generally all on the same page.  Most are pleasantly surprised at the resilience of the US economy Kashkari still sees a Dec rate cut as most likely bar any upward inflation surprises.  Mester was more hawkish, saying the Fed could carry out fewer rate cuts through 2025 than previously expected, depending on Trump’s tariffs and other policies.

Trump has made several appointments to his new government, including Elon Musk who will head up the Dept of Govt Efficiency. I have long said that we need more business people running the country’s finances so I’ll be very interested to see how this turns out.  I’m not sure Musk would be my choice, his fortune has been made with some rather hefty gambles, although I admit that ultimately they have worked out.  I’d imagine he’ll certainly look to do things his way rather than be swayed by career politicians. 

Today we have the latest US CPI inflation numbers, not expected to be very different to last time out but still capable of moving the markets if they end up away from expectations.  We also have another raft of Fed officials speaking, I’m interested in how many of them mention the potential for fewer Fed rate cuts next year.

Overnight we’ll have employment and inflation numbers out of Australia.  I would be surprised if either come in weak enough to move RBA away from their hawkish stance but it is fair to say AUD is looking a touch softer so far this morning, AUDUSD back to the support area I mentioned recently around low-0.65s, AUDNZD down to 1.1000 and GBPAUD up 50 pips or so to 1.9545. 

Not much in the way of other interesting news or sport so i’ll leave it there for now.  Have a great day, take It easy this mornig, the afternoon could be another lively one!

-  09.45 BoEs Mann speaks

-  10.00 EU industrial production

-  13.30 US CPI

-  14.30 Feds Williams speaks

-  14.45 Feds Logan speaks

-  18.30 Feds Schmid speaks

-  19.00 US Fed budget statement

-  19.10 Feds Musalem speaks

-  23.00 RBAs Bullock speaks

-  00.00 AUS consumer inflation expectation

-  00.30 AUS unemployment

USD strength continues to dominate markets

Good morning

It was a reasonably quiet day yesterday as we’d expected given the US holiday.  USD strength was the main theme, continuing the moves we saw at the end of last week.  GBPUSD traded as low as 1.2855, EURUSD was briefly down at 1.0630 through the afternoon, while USDJPY held its previous overnight gains to stay in the high-153’s. 

GBPEUR traded above 1.2100 for the first time since April 2022.  It was a short-lived spike, the pair traded back down to 1.2080 into the London close but the difference between ECB and BoE interest rate outlooks continue to offer supporting to GBPEUR.  USDJPY held its previous overnight gains to sit for most of the day in the high 153’s. 

Since the London close yesterday we have seen the USD buying theme continue.  GBPUSD is now down at 1.2810, EURUSD at 1.0630, although USDJPY has failed to make further gains, still sitting in the high-153’s.  There has been some suggestions that the Fed will pause its rate cut cycle following Trump’s election victory which would certainly go some way to explaining this USD strength.  GBPEUR is off its highs at 1.2050 but still seems well supported, the notable difference between ECB and BoE rates and rate outlooks continue to have a role here.

ZAR had an interesting day, losing about 3% from last week’s levels, with GBPZAR moving from a morning low of 22.68 up to around 23.15.   The rand weakness seems to stem from various issues including lower gold prices and perhaps more significantly some uncertainty as to how Trumps victory could impact South Africa.  Remember, back in early 2023 there had been a suggestion that South Africa had sent arms to Russia.  I’m not sure of the outcome of the resulting investigation but if they were ultimately deemed to have done so there is a good chance Trump will take more action than Biden did. 

This morning we had UK employment numbers which were something of a mixed bag.  The unemployment rate was up and the employment change was down, however claimant count was lower while average earnings were above expectations.  Still, these numbers come before any impact of the recent UK budget, specifically the increase in employer national insurance contributions.  It may take some time to see what impact, if any, these tax increses have on overall employment numbers.  We also had the latest inflation numbers from Germany but as usual they were very much in line with expectations and have had little market impact.

Do keep your eye on GBPINR which this morning briefly traded below 108.00 for the first time since mid-August.  USDINR is just short of 84.40 but the GBP weakness has sent GBPINR from a high of around 112.50 just six weeks ago.  The big question now is whether this move continues, for now it has moved off the lows to 108.10.  One to watch, that’s for sure.

As you know I’m not a fan of Bitcoin but I do follow its movements for interest.  It has reached a high of almost US$90,000 an I’m sure there are many looking at the US$100,000 area as a target.  Quite why it has such value is frankly beyond me, but I am certainly left ruing the fact I failed to buy some Bitcoin, even a hundred dollars worth, when it was trading below $0.10, or even below $0.01 if memory serves me correct.  I’d be a multi-millionaire that’s for sure.  Although I have no doubt I’d have sold them out at $10 and thought I was clever with a handsome profit! 

North Korea and Russia have signed a mutual defence treaty which calls for either side to come to the others aid in case of an armed attack.  We believe North Korean troops are already on the ground in Ukraine, but I think this is a worrying development.

The rest of the day is limited in terms of economic data but we will hear from several Fed officials who are speaking after the blackout period before last week’s FOMC rate announcement.   We’ll look for any comment as to whether the Trump election victory will impact thinking on interest rates, but its too early to get anything conclusive.

I see Gary Lineker is leaving Match of the Day at the end of this season after 25 years.  I actually remember his very first appearance as host on the show and I have to say it was pretty terrible, but he grew into the role and whoever replaces him has pretty big boots to fill.  They probably won’t get an income to match Lineker’s £1.3 annual pay, I never begrudged him that but iIts just a shame he got a bit political and outspoken on social media from time to time which, for me at least, dented my support of him.

Have a great day

-  10.00 German ZEW

-  14.00 ECBs Cipollone speaks

-  15.00 Fed’s Waller speaks

-  15.15 Feds Barkin speaks

-  19.00 Feds Kashkari speaks

-  22.00 Feds Harker speaks

-  00.30 AUS wage price index

GBP higher against EUR but USD trumping all for now

Good morning

They shall not grow old, as we that are left grow old

Age shall not weary them, nor the years condemn

At the going down of the sun and in the morning

We will remember them.

                                                                                Laurence Binyon, 1914

A bit of a mixed day Friday, the US dollar lost a bit of ground early Friday afternoon before slightly better Michigan sentiment numbers along with Trump’s success, helped the US dollar recover.  GBPUSD had been up at 1.2975 but dipped to 1.2885, while EURUSD which had been up at almost 1.0800 in the afternoon, traded down 1.0700 by the London close. 

Since the open we had a little USD selling but once again this has been shallow and short-lived, and we are now back to 1.2890 in GBPUSD and 1.0680 in EURUSD, which actually marks the lowest level for EUR since June, just surpassing last week’s lows.  1.0665 is the next big level that offered support in June, followed by 1.0600 which we reached in April, so far the low of the year.  The EUR weakness is also reflected in GBPEUR which, at 1.2070 marks a new high since April 2022.

CAD unemployment Friday came in mixed, a lower than expected unemployment rate, higher average hourly earnings although a lower net change in employment.  CAD was USDCAD has pushed higher amid the broader USD strength, the pair now 1.3925.  This was the high Friday, further gains will really only come if this USD move continues.

US are on holiday today for Veterans Day which usually means we’re in for a fairly quiet day.  Highlight of the week is likely to be US CPI on Wednesday but we’ll also have UK employment Tuesday, Aussie employment early Thursday morning, EU GDP Thursday, US PPI Thursday afternoon and UK GDP and US retail sales Friday.  We’ll also have a host of Fed officials speaking who had been silent for a couple of weeks due to the Fed pre-meeting blackout period.  So perhaps not quite the event risk we’ve had over the past couple of weeks but still plenty to keep us on our toes. 

Probably best if don’t talk about sport too long this morning.  Spurs managed to gift Ipswich Town their first win of the season, at least the second time Spurs have lost to a club in the bottom three this season.  My fault really, I got a bit ahead of myself thinking Spurs would win, which, had they done so, would now put them above both Arsenal and Chelsea after their draw yesterday.  Instead of taking third place, Spurs sink to 10th in the table.  A massive difference.  We’re now on yet another international break, with England facign Greece on Thursday and RFepublic of Ireland next Sunday.

England lost the rugby to Australia, I didn’t see much of the game but understand it was a pretty exciting, high-scoring affair which England looked to have won with a late try, only for Australia to nab it deep into injury time.  England now face the mighty Springboks next Saturday, likely to be an even tougher test than New Zealand or Australia.  Meanwhile, Englands cricketers are back to winning ways, having beaten West Indies in the first two T20 matches over the weekend, both pretty decisive victories.    

I did manage to pick up plenty of leaves at the weekend but looking out now there is another layer already on the lawn, but the trees are still far from bare.  It’s feeling chilly outside but highs still around 11°c which I’ll take for this time of year.  Starting to get cold overnight mind you. 

Have a great day

-  23.30 AUS westpac consumer confidence

-  07.00 UK unemployment

-  07.00 German HICP