Feb 7 2024:
The USD trades broadly unchanged this morning, coming off a strong last couple of days, with the buck continuing to find support amid the ongoing ‘US exceptionalism’ narrative, and subsequent hawkish repricing of Fed policy expectations, after Friday’s blowout jobs report, and yesterday’s better than expected ISM services PMI figure. Markets now price just a residual 17% chance of a March cut, with the first 25bp cut of the cycle now not fully priced until the June meet. A further repricing of these expectations, perhaps resulting from today’s busy calendar of Fed speakers, should continue to provide support to the greenback. With this week, by and large, bringing a quiet data docket, it seems likely that the USD will continue to follow the ‘path of least resistance’ to the upside for now.
The EUR, meanwhile continues to bear the brunt of the stronger USD, with spot this morning trading close to its lowest level since mid-December, as the eurozone economic outlook remains rather dour, despite better-than-expected (albeit skewed) German factory orders data this morning.
Sterling also continues to trade relatively soft, though has recovered a touch after yesterday saw cable decline for a second straight day, and dip below the 200-day moving average for the first time since last November, with markets shrugging off stronger-than-expected January PMIs, while also largely ignoring remarks from BoE Chief Economist Pill. The GBP’s near-term outlook likely sees risks remain tilted to the downside, though largely as a function of the strong bullish USD momentum, than any specific domestic factors.