Daily Currency Update

USD - US Dollar

The US job market's strength continues to work against a dovish Federal Reserve stance. Jobless claims have dropped to 187k, near pandemic lows, with continuing claims also below forecasts. Housing starts exceeded expectations. Despite a 50-60% chance of a March rate cut, it seems unlikely given current economic conditions. US disinflation, while moderate, has been positive for markets. Today's focus is on the University of Michigan inflation data, expected to be steady, and December's existing home sales and November's TIC flows. It's the last day for FOMC members to speak before the blackout period. The dollar may stabilize after recent gains, with next week's Q4 GDP data as the next significant US release, unlikely to present a strong bearish case for the near future.

CAD - Canadian Dollar

The CAD has made slight gains against the USD, although the increase was very small. The recent decline from its overnight peak largely mirrors the drop in US yields. However, the CAD remains near value estimates (1.3555 today), as factors influencing the exchange rate slightly favor the USD. Canadian Retail Sales are anticipated to be unchanged, consistent with preliminary data that accompanied October's strong 0.7% rise. Observe USD/CAD trends.

EUR - Euro

European Central Bank President Christine Lagarde is set to join a panel in Davos today, but with the ECB in a quiet period, policy comments are not expected. Recent statements from Davos suggest the ECB's stance is less dovish than market predictions. Market reaction was muted to the December ECB meeting minutes, where rate cuts were not a focus. Today's eurozone calendar is clear, and the EUR/USD is expected to stabilize around 1.08500/1.0900. Current levels are considered fair value according to our short-term model.

GBP - British Pound

UK retail sales in December fell short of expectations with a 2.4% year-on-year drop, dampening the recent GBP rally following a gilt sell-off triggered by CPI data. This decline suggests a weaker UK economy, but the Bank of England's main concern remains inflation, particularly in services. A reassessment of BoE rate expectations hinges on whether December's CPI surprise is seen as a temporary deviation. Expect volatile trading as the week closes.