1,000 Days
Hello and welcome back. The week ahead brings a sombre anniversary as it marks 1,000 days of the Russia-Ukraine war.
This milestone coincides with Russia increasing the scale of attacks on Ukraine’s energy infrastructure and Biden authorising Ukraine to strike deeper into Russian territory with US-made missiles. The imminent hope of resolving this conflict with the introduction of chief deal-maker Trump appears remote for now. Such geopolitical themes will be topical at this week’s G20 summit in Brazil, but markets are not expecting a great deal of market-moving news from this event.
Markets, in general, finished last week in consolidation mode as recent moves held steady.
The dollar found a new home in EUR/USD below 1.0550 and tested 1.2600 in GBP/USD amidst relatively thin news flow, with investors seemingly having a lie down after a frantic couple of weeks. The ‘Trump Trade’ is alive and kicking, but it appears we’re at an inflection point where markets will decide if they wish to continue or not.
Bitcoin remains at recent highs of close to $92,000, and the Dollar Index remains well supported. A more interesting development is that, amidst steepening yield curves and robust US data, the chances of a rate cut from the Fed in December have been reduced to less than 50%.
The week ahead looks packed with key data and risk events, including a string of central bank officials speaking to the market. This kicks off today with a barrage of European Central Bank (ECB) speakers, including Nagel, Lane, and Lagarde.
The UK and the US are also in action, with the Bank of England’s Greene and US Fed member Goolsbee due to speak. The data calendar for the week ahead will bring European and UK inflation figures, with the latter arguably being the last data event that could create a surprise swing in betting odds for another rate cut in the UK. This feels unlikely at this stage, considering that CPI is expected to head higher month on month due to the energy price cap coming into effect.
The expected releases this week will pose a question for GBP/USD as to whether it drifts lower amidst such a wave of dollar demand or if there is a window of opportunity for a small reversal following the Greenback’s influx of support after the Trump victory. The data will undoubtedly feed into this view, but our suspicion is that while the 1.25s could trade, we may plateau somewhat as investors and market participants adjust to the new normal of a Trump presidency and what higher yields mean for central bank policy.
Market rates
GBPUSD 1.2624
GBPEUR 1.1975
EURUSD 1.0543
Brent Crude 71.30
Bitcoin $91,593.00
FTSE 8063
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