EUROPEAN FX UPDATE: Pound under pressure as Cable hangs by a thread

USD: DXY +0.1%; 109.10

• USD broadly firmer vs. peers (ex-JPY). It's been a busy week for the Greenback with price action dictated by a combination of reporting over the Trump tariff regime, hot ISM services & JOLTS, comments from Fed's Waller, weak ADP and lower-than-expected IJC. Last night also saw the minutes from the FOMC's December meeting which stated that participants indicated the Fed was at or near a point at which it would be appropriate to slow the pace of easing. This release is due to be followed by a busy schedule of Fed speak including Harker, Collins, Barkin, Schmid, Bowman. As it stands, with January widely expected to see an unchanged rate from the FOMC, the March meeting has around 11bps of loosening. Note, today sees no trade for the US stockmarket and on account of mourning for former President Jimmy Carter - volumes will be lighter than normal.

EUR: EUR/USD -0.1%; 1.0305

• EUR marginally softer vs. the USD. Updates from the Eurozone have seen a better-than-expected outturn for German Industrial Output. However, this appeared to be more of a bounceback from recent softness rather than the start of a noteworthy recovery in German. Elsewhere, ECB's Cipollone said policy should be set to let the Eurozone run at its potential, whilst Villeroy is of the view that rates will hit neutral by summer. EUR/USD has just about managed to reclaim the 1.03 level after printing a WTD low yesterday @ 1.0273. The next upside target comes via yesterday's peak @ 1.0357.


• EUR/USD opex: 1.0200 (4.2bln), 1.0240 (630mln), 1.0250-60 (3.5bln), 1.0270 (1.6bln), 1.0290 (834mln), 1.0300 (4.5bln), 1.0325 (585mln), 1.0340-50 (2.8bln), 1.0400-10 (1.1bln), 1.0420 (829mln).

JPY: USD/JPY -0.2%; 158.07

• JPY is the only of the majors that is firmer vs. the USD. JPY has been lent a helping hand by firmer-than-expected labour cash earnings which supports the case for the BoJ to resume rate hikes. As it stands, markets are still leaning in favour of an unchanged rate on Jan 24th (57% vs. 43% hike). Elsewhere, the BoJ' Nagoya Branch Manager attempted to jawbone JPY, stating that excess FX volatility is undesirable, important for it to move stably. BoJ Osaka branch manager said a significant number of firms are keen to hike pay, so expect solid wage hikes in 2025 wage talks. USD/JPY has been as high as 158.39 but is yet to approach yesterday's multi-month peak @ 158.55.

GBP: GBP/USD -0.7%; 1.2277

• GBP is once again at the foot of the G10 leaderboard as the ongoing spike in UK yields shows no signs of abating (see fixed income section for further details). ING notes that "the gilt sell-off has however dented that confidence in sterling and the risk now is that sterling longs get pared as investors reassess sterling exceptionalism". Accordingly, Cable cracked 1.23 to the downside for the first time since November 2023 (1.2240 is the current low), whilst EUR/GBP briefly took out 0.84 to the upside for the first time since 4th November 2024. Reports in UK press suggest that Chancellor Reeves is reportedly eyeing more spending cuts if the UK bond rout eats up headroom. BoE's Breeden due to speak @ 16:00GMT.

Antipodeans: AUD/USD -0.4%; 0.6191. NZD/USD -0.4%; 0.5587

• Both near the foot of the G10 leaderboard vs. the USD as risk sentiment remains soggy and Chinese price data remained lacklustre overnight. AUD/USD was unfazed by mixed data in which the trade balance printed a larger-than-expected surplus, imports and exports improved, although Retail Sales disappointed. AUD/USD has printed another incremental low @ 0.6173 with the next target coming via the October 2022 low @ 0.6169. Similar price action for NZD/USD with the pair extending its recent decline and is now at its lowest level since 17th October 2022; 0.5551 was the low that day.

09 Jan 2025 - 10:15- ForexData- Source: Newsquawk