Daily Currency Update

USD - US Dollar

The major currencies continue to experience volatile, range-bound trading. Yesterday's US PMI data and a disorganized 5-year Treasury auction contributed to higher US yields and a rebound in the USD from its lows, though market conviction remains uncertain with significant upcoming events. Today's focus is on the Q4 GDP, expected to show a growth slowdown to around 2.0%, and the ECB policy decision. Tomorrow brings the PCE data, with the FOMC meeting and month-end next week. The FOMC decision could clarify the likelihood of policy changes in March or May, influencing market trends in the coming weeks. Currently, the USD is generally weaker, commodity prices are slightly stronger, but this sentiment isn't reflected in European markets, and US futures are mixed. Seasonal, technical, and potential Fed repricing risks, especially if there's no rate cut in March, could support the USD in the near future.

CAD - Canadian Dollar

The Bank of Canada's recent decision had little impact on the short-term outlook for the CAD. The focus was on the policy statement's removal of the tightening bias, despite the low likelihood of further rate hikes. Governor Macklem still mentioned the possibility of higher rates. Market rates responded more to the Bank's significant concerns about sustained inflation and the potential for an extended period of high rates, slightly reducing expectations for rate cuts in March and April. Stronger-than-expected US PMIs also pressured the CAD, comparably to the BoC's decision. While the CAD retested the low/mid 1.35 area overnight, its recent stabilization suggests it remains within a wide trading range. Observe USD/CAD trends.

EUR - Euro

Today's ECB policy decision is expected to result in a neutral stance, maintaining current rates. The ECB is currently basing decisions on incoming data, and there isn't much new information for today's discussion. Recent statements from key ECB figures, including President Lagarde, have directed market expectations away from any rate cuts before June. Current swaps suggest a 16-17 basis point easing for the April meeting, which seems excessive given the ECB's current stance, so a slight adjustment in ECB risk expectations could modestly boost the Euro today. However, the potential for significant Euro gains appears limited at this stage, with any increase likely capped around the mid 1.09 range.

GBP - British Pound

The CBI's Distributive Trades Survey indicates a continued weak retail sector in the early new year. January's figures reveal a significant drop in sales volume, the lowest since early 2021, with weaker sales for the season as well. Despite this, the Sterling remains stable for the day, adhering to recent trading ranges. The GBP is supported by a relatively more assertive adjustment in market expectations for Bank of England rate cuts this year.