The Morning Update

Friday January 26th, 2024

Written by:
Paul Harrison

The USD eases, oil prices weaken, equity markets are up, and US yields ease amid rate pivot speculation. Currency markets are stable as markets shift their focus to next Jan 31st FOMC meeting after both the BoC & ECB gave muted affirmation that interest rates have peaked and may lower their rates mid-2024. European equity markets tested 2-year highs on strong luxury goods quarterly results, while US markets stalled after Intel Corp's bleak forecast, causing its shares to fall 11% in pre-market trading. Risk-on sentiment improves as markets grow comfortable with the idea of a US economic soft landing. Elsewhere, oil prices ease from near 2024 highs as China presses Iran to rein in Red Sea Houthi attacks. Bitcoin bounces off post-ETF lows, edging above $40k again. Investors will be focused on the latest US inflation data with the US Core Personal Consumption Expenditures-Price Index, Pending Home Sales, and German BUBA Monthly Report to help provide intraday direction to the currency markets.

In other news. UK regulator opens probe into Vodafone merger with CK Hutchinson's three mobile network. The UK and Canada blame each other as trade deal talks break down. The US attacks Hungary's Obran for 'fantasy foreign policy" that helps Putin. The top UN court is set to issue a preliminary ruling in South Africa's genocide case against Israel. French President Macron joins India's Republic Day celebrations as chief guest. Tesla erases $80 billion in valuation after Musk's sales warning. Biden halted the approval of new licenses to export US LNG exports. Klopp will stand down as Liverpool FC's manager at the season's end.

In currency markets. The USD eases ahead of crucial US inflation data. The GBP holds near 4-month highs on the back of more robust UK business activity data. Indonesian Rupiah is set for a weekly fall on fears of its finance minister's exit. China is set to snap a three-week losing streak on stimulus optimism. CNY is flat, while Asian currencies are up 0.1% on average vs USD. Trading currencies are mixed, with NOK slipping 0.1%, while JPY & NZD are flat, AUD, SEK & MXN gaining 0.2%, ZAR strengthening 0.4%, and CHF rallying by 0.5% vs. USD.

In commodity markets. Oil prices dropped by 0.8%, Natural Gas & Silver prices strengthened by 0.7%, Gold prices firmed by 0.3%, Copper and Soybean prices are flat, and Wheat prices weakened by 1%.

CAD rebounds from its weekly lows as investors return to the loonie as signs of a soft landing in the US economy bolstered risk-on sentiment. Investors will likely remain cautious ahead of today's US PCE report for further signs that the US economy remains robust while inflation pressures are easing. If the PCE prints within its forecasted range, we expect the loonie to be contained within its current trading range as investors are expected to shift their focus to next week's FOMC meeting.

EURCAD holds steady near monthly lows after the ECB almost mirrored the BoC's stance on its interest rate policy.

EUR strengthens through 1.0850 as risk sentiment improves and the USD comes under weeks-end selling pressure. Euro bounced off 5-week lows as investors shifted their focus to the US PCE inflation report and towards next week's US Fed interest rate decision. Domestically, the ECB left rates unchanged on Thursday; while ECB President Lagarde refrained from commenting on the timing of a policy pivot, she did make a muted comment that interest rates have peaked. Intraday, the PCE results will help drive intraday direction.

GBPEUR extends gains, up 1.6% and holding at 5-month highs by expecting the ECB to cut rates before the Bank of England.

GBP rallies through 1.2700 amid a weaker USD ahead of crucial US inflation data. The pound continues to expand gains against its peers as their central banks suggest that rates have peaked and expectations grow that the respective central banks will ease rates by mid-2024. At the same time, the BoE is anticipated to keep its interest rates on hold until late 2024 as domestic inflation levels persist. Intraday, the US PCE inflation data will drive intraday currency markets, with many investors likely to remain cautious ahead of the FOMC on Wednesday.