U.S. Dollar Gains, Trading Near 11-Week High
GBP
GBP/USD is currently trading at 1.2550 (interbank), which is up 0.18% for the day but still close to its lowest point in the past seven weeks. Currently, GBP/EUR is trading at 1.1695 (interbank).
The pound's decrease yesterday occurred despite some positive economic data. Reports indicate that UK unemployment in late 2023 may have been lower than previously estimated, potentially delaying any rate cuts by the British central bank.
Today, retail sales in the UK for January showed sluggish growth as consumers remained cautious about their spending. Consumer spending in January increased by 1.2% compared to the same month last year, reflecting a decline in purchases when adjusted for inflation and falling short of the 1.7% rise observed in December.
Additionally, the Construction Purchasing Managers’ Index (PMI) data for January 2024 reached 48.8, an improvement from December's 46.8 and the highest reading since August 2023. However, any score below 50 indicates a decline in activity. A more positive aspect is that companies expressed strong optimism about business activity expectations in January, with optimism reaching its highest level in two years.
Today’s Events (GMT):
00:00 - Retail Sales (Jan) - Actual: 1.40% vs Forecast: 1.20%
09:30 - Construction PMI (Jan) - Actual: 48.8 vs Forecast: 47.2
EUR
EUR/USD is continuing to decrease and is currently trading at 1.0734 (interbank).
This morning, German factory orders unexpectedly rose in December, with an increase of 8.9% on a seasonally and calendar-adjusted basis following a flat reading in November. This surpasses expectations of unchanged orders. On a year-on-year basis, factory orders in December were 2.7% higher, rebounding from a 4.7% decline in the previous month.
Furthermore, the ECB’s Consumer Expectations Survey for December highlighted a significant trend in consumer sentiment regarding inflation and economic growth.
In a positive development, consumers' expectations for inflation over the next 12 months have decreased for the third consecutive month, with the median inflation expectation falling to 3.2%. This is a drop from November's 3.5% and October's 4.0%.
A potential adjustment in the expected timeline for a first rate cut by the ECB, possibly moving it from April to June, is likely to support the euro in the medium term.
Today’s Events (GMT):
07:00 - German Factory Orders (Dec) - Actual: 8.90% vs Forecast: -0.10%
08:30 - Eurozone Construction PMI (Jan) - Actual: 41.3 vs Previous: 43.6
10:00 - Retail Sales (Dec) - Actual: -0.80% vs Forecast: -0.90%
USD
The dollar index, which measures the U.S. currency against six other currencies, has eased by 0.11% to 104.34, after reaching 104.60 on Monday, its highest level since November 14. Year-to-date, the index has gained 3%, rebounding from a 2% decline in 2023.
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A series of strong U.S. economic indicators and statements from Federal Reserve Chair Jerome Powell have dampened speculation about early and substantial interest rate cuts, providing support for the dollar.
Traders have been reducing their expectations of rate cuts since the beginning of the year, with only a 16% probability of a cut in March, compared to a 69% likelihood at the start of the year.
Investors are now pricing in approximately 115 basis points (bps) of cuts for the year, compared to around 150 bps expected in early January.
There is limited economic data from the U.S. today, but both FOMC members Mester and Kashkari are scheduled to speak later in the day.
Today’s Events (GMT):
17:00 - FOMC Member Mester Speaks
18:00 - FOMC Member Kashkari Speaks
CAD
USD/CAD exchange has retraced its recent gains and is currently trading at 1.3530 (interbank) in today's session.
The Canadian dollar has come under pressure as oil prices continue to weaken due to trade disruptions in the Red Sea.
Moreover, Canadian government 10-year bond yields have risen by 13 basis points to 3.509%.
Investors anticipate the BoC will begin lowering its benchmark interest rate from a 22-year high of 5% in April, according to a survey released by the central bank on Monday. By the end of 2024, market expectations suggest the median forecast for the policy rate will decrease to 4%, aligning with the forecast in the previous survey released in November.
Investors will be closely watching Canada's Ivey Purchasing Managers Index data and a speech by BoC Governor Tiff Macklem later today.
Today’s Events (GMT):
15:00 - Ivey PMI (Jan) - Previous: 55
18:00 - BoC Gov Macklem Speaks
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