US Dollar Consolidates Recovery Ahead of Key Data, FOMC Minutes.

Impact on GBP: Sterling stands firm against Euro but down vs Dollar

Sterling?maintained its position in Cable (GBP/USD)?after registering losses in the previous session, hovering around $1.2480 during Wednesday's Asian hours, having opened yesterday's session around $1.2530. The Pound is unmoved against the Euro.

Elsewhere, the UK’s long-term borrowing costs surged to the highest level since 1998 as traders dumped debt ahead of a near-record flood of bond sales this year.?The yield on 30-year gilts climbed three basis points to 5.21%, just ahead of a ￡2.25 billion ($2.8 billion) auction for notes of the same maturity on Tuesday.?The move ramps up the pressure on Chancellor of the Exchequer Rachel Reeves to keep the market on side ahead of a raft of bond sales. The Labour government’s plans to sell ￡297 billion of bonds this fiscal year — the second-highest on record — is keeping gilts under pressure, as investors worry about the outlook for the nation’s ballooning debt.

No Major Data

Impact on EUR: Still embedding some risk premium

Eurozone inflation re-accelerated from 2.2% to 2.4% in December, a largely base-effect-driven move that was fully expected. The core rate was unchanged at 2.7%. The ECB’s survey of inflation expectations showed a significant rebound from 2.1% to 2.4% for three years ahead, but markets doubt any of yesterday’s numbers will be enough to make the ECB tweak its dovish narrative at this stage. Markets agree and are still pricing in four cuts this year.

As discussed in the USD section below, the strong US macro story is fighting technical short-term bullish factors on the pair. Incidentally, markets won’t necessarily need to completely close that risk premium anytime soon, as part of it is still generally justified by downside risks to the Eurozone on the back of Trump’s protectionism threats.

There is only a speech by French central bank governor Villeroy to watch in the Eurozone calendar today. EUR/USD may find decent support at $1.0300 for now.

No major data, Speaker as detailed above.

Impact on USD: USD begins to re-strengthen

Markets have been tempted in the past couple of days to believe there is some truth behind the Washington Post’s report – quickly rebuked by Trump – that US tariffs will be only on selected products.?

For now, markets have been left guessing on tariffs, which allowed the US macro story to take over and unmistakenly offer support to the Dollar. Yesterday’s US data releases were hawkish for the Fed, and the implied probability of a March rate cut has now dropped below 40%. Treasuries had another soft session yesterday, and stocks slipped, adding support to the safe-haven Dollar.

Aside from the stronger-than-expected JOLTS job market opening and the headline ISM services index, the most remarkable print was the ISM prices paid subcomponent, which spiked to the highest level since January 2023. If a generally resilient economy was already accounted for when the Fed met in December, a resurgence in inflation concerns could drive an even further hawkish tuning in the policy message.

The details of December’s FOMC will be released in today’s minutes, which could throw a bit more support behind the Dollar. Expect also some reaction to the ADP payrolls, even if they seldom predict official payrolls. More importantly, there is a speech by Chris Waller that will hopefully help us see if he joins other members in flagging lingering inflation risks.

There could be opposing forces on the Dollar today, as the technical/positioning picture still points to correction risk, but the Fed/macro picture may well continue to attract Dollar bulls.?

Data 13.15: ADP Non-Farm Employment Change expected?139k from 146k. 13.30: Unemployment Claims expected 214k from 211k. 19.00: FOMC Minutes.?Speaker 13.30: FOMC Waller.

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