New Year, Same Dollar - Klarity FX Market Briefing
New Year, same greenback dominance, supported by solid initial claims data, moderated rate-cut expectations, and elevated US Treasury yields. The week ahead is expected to see December non-farm payrolls rise by 150k, unemployment at 4.2%, and average hourly earnings slowing to 0.3%. While these figures may not significantly impact yields, the USD remains firm, with little obvious on the horizon to stage a reversal.
There was no Santa rally, and mild profit-taking saw US equities endure a 5-day losing streak, the worst performance since April. Fed’s Barkin, speaking Friday, expressed confidence in easing core inflation but not without risk from uncertainties around incoming Trump policies. He also noted pressure on long-term yields from rising US debt, highlighting concerns for institutional portfolios managing duration risk. Atlanta’s Q4 GDP forecast was revised down to 2.4% from 2.6%, potentially tempering the Fed’s cautious stance on cuts if slower growth concerns build.
As of Monday, January 6th, 2025, reports emerged of fluctuating statements between media outlets and the White House regarding the potential implementation of targeted tariffs. Later, Trump clarified that universal plans were under consideration. This leaves corporate teams balancing forecasts against evolving policy directions, with flexibility remaining a focus.
Broader valuations appear stretched post-election, suggesting technical pressure on USD's strength or risk assets, with fiscal and Fed policy uncertainty adding volatility risks into the January 20th inauguration. The USD has rallied 5% since Trump’s victory, with much of his policy outlook priced in. Near-term adjustments could moderate USD strength, though volatility is likely to persist.
US stock markets will close January 9th for former President Jimmy Carter’s funeral, introducing an additional layer of illiquidity that may influence short-term FX flows.
The Loonie losses have steadied in thinner markets but still mark a six-week losing streak as there is no letup in widening rate spreads favoring the USD, hitting a 135bps cycle high. Despite USD overvaluation signs, seasonal trends have turned negative for CAD, while Trudeau uncertainty and the BoC’s easing stance continue to weigh. Albeit, a resignation could allow for CAD to have a relative fresh outlook if new government focuses on the Canadian productivity lag. Canada also reports its employment report on Friday, presenting a data risk point for CAD traders.
EUR remains under pressure, weighed down by weak growth prospects, exposure to potential US tariffs, easing ECB policy, and political turmoil with Germany and France essentially rudderless and without agreed budgets. GBP faces similar headwinds from softer economic data and dovish BoE expectations, leaving it vulnerable to downside risk with limited near-term catalysts for recovery.
JPY consolidates at 156-158, with limited BoJ intervention. A January hike remains uncertain, though labor data may influence expectations. FX risk managers should monitor Japan’s inflation signals closely as BoJ policy normalization debates grow.
领英推荐
Disclaimer: The details expressed in this transmission and accompanying documents are for information purposes only and are not intended as a solicitation for funds or a recommendation to trade.
?