Dollar Steadies Before Fed Minutes

GBP

GBP/USD pair has gained 0.2% and is currently trading at 1.2633, following a 0.87% slide in the previous session, marking its steepest daily decline in nearly three months. GBP/EUR is currently at 1.1550 (interbank).

Concerns about a potential recession and the fragile state of the United Kingdom's manufacturing sector have diminished the attractiveness of the British Pound.

According to the Economic Confidence Index survey by the Institute of Directors, optimism among British directors about the country's economy for the next 12 months continues to decline, with the index dropping to 28 in December, down from the previous month's decline of 21. Corporate executives in the UK are urging the BoE to promptly lower interest rates to support the struggling economy.

Adding to these concerns, the latest PMI data shows that UK manufacturing output contracted at an accelerated rate at the end of 2023.

There is now a high expectation that the BoE will begin cutting interest rates starting in May 2024, reflecting the view that the UK's economy is vulnerable to a technical recession.

No significant events are scheduled for today

EUR

EUR/USD is currently trading at 1.0930 (interbank) after experiencing a decline of around 1% yesterday, marking its largest daily drop since July of the previous year.

This morning, German unemployment data for December came in slightly better than expected, but this has done little to offset the negative sentiment generated by Tuesday's weak eurozone manufacturing PMI release, which indicated an economy in recession.

There is an increasing likelihood of rate cuts from the European Central Bank (ECB) to stimulate the economy. Investors have factored in six rate cuts from the ECB in 2024.

Yesterday, ECB policymaker Pablo Hernandez de Cos stated that economic data uncertainty remains high and that the timing of the ECB's policy shift would be determined by data. He also estimated that inflation in the Eurozone will continue to decline.

Today's Events (GMT):

08:55 - German Unemployment Change (Dec) Actual: 5K vs. Forecast: 20K

08:55 - German Unemployment Rate (Dec) - Actual: 5.9% vs. Forecast: 5.90%

USD

The dollar index, which measures the U.S. Dollar against a basket of six currencies, surged 0.86% on Tuesday, marking its strongest daily performance since March 2023. The index is currently at 101.959.

Several factors have contributed to the dollar's performance, including elevated U.S. Treasury yields and a cautious turn in risk sentiment that has weighed on Wall Street.

Additionally, the U.S. Manufacturing PMI data for December eased to 47.9 from the previous reading of 48.2, falling short of expectations at 48.2, indicating a slowdown in the manufacturing sector.

U.S. Treasury yields rebounded, with the benchmark 10-year yield reaching its highest level in over two weeks in the previous session.

The Federal Reserve's December meeting minutes are due later today. Analysts have cautioned that the minutes may not be as dovish as the markets hope, which could dent risk sentiment.

Today's Events (GMT):

15:00 - ISM Manufacturing PMI (Dec) - Forecast: 47.1

19:00 - FOMC Meeting Minutes

CAD

USD/CAD has risen for the fifth consecutive day and is currently trading at 1.3330 (interbank), marking its most significant increase since October 2023. Moreover, the currency touched its lowest intraday level since December 21st at 1.3333.

Canadian Manufacturing PMI data continued to decline yesterday, with a reading of 45.4 for December, down from November's 47.7. This represents a 43-month low, highlighting the deteriorating economic outlook in Canada.

Reduced concerns about disruptions in Red Sea supplies, coupled with weak economic data from China, a top oil importer, have kept crude oil prices near a two-week low.

Furthermore, Canadian government bond yields increased across the curve, tracking movements in U.S. Treasuries. The 10-year yield was up 8.4 basis points at 3.191%.

No significant events are scheduled for today

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