USD marched on yesterday as US treasury yields clawed back losses from the two previous days, with 10-year yields back up to 4.15%. The USD index 2024 uptrend thus looks set to continue as price action continues to make higher highs. GBPUSD was lower as a result but remains in its month long sideways trading, and EURUSD dipped under its 200-day moving average indicating. More downside to come on the pair.
In the money markets, the amount of rate cuts expected this year continued to ease as traders take heed of warnings from central banks, as well as taking into consideration the inflationary pressures from geopolitical risks.
* Daily move - against G10 rates at 7:30am, 24.01.24
** Indicative rates - interbank rates at 7:30am, 24.01.24
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All about PMI numbers as we look to get initial estimates of activity in the respective service and manufacturing sectors in January. Europe's activity is expected to remain in contraction territory, but both UK and US activity is expected to show expansion. This should keep GBPEUR buoyant, and we could well see a push through that December high.
Also on the agenda today is the Bank of Canada rate decision, where rates are expected to remain at 5%. The message from the Bank seems unlikely to be overtly dovish given December's inflation numbers came in higher. A similar message as the Fed seems likely, where there will be a softening of their hawkish tone and suggestions of being open to cuts this year.
Our importing clients will be very aware of the implications that the attacks on civilian ships in the Red Sea have had on their business, not just the delays on supplies but also the financial cost. Freight container costs have more than tripled since the attacks, and the last time this happened and remained elevated this eventually led to a rise in inflation. We know from recent market price action that USD has been the currency most impacted from an expectation of rate cuts. So should inflation start to rise, it seems the amount of rate cuts being priced in will likely reduce, which could bode well for USD going forward.
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