US FX WRAP: Dollar strength takes a breath, helping EUR/USD cling above 1.03, while CAD underperformance resumes

Analysis details (20:57)

The Dollar trimmed weekly gains into the weekend with DXY slipping back onto a 108 handle, albeit just. Losses were present pre- and post-ISM PMIs, where Manufacturing unexpectedly rose in December, although still in contractionary territory, with a hot prices paid component, Employment sinking and new orders rising, highlighting the strongest level of demand for new goods in 11 months. On Fed speak, Barkin (2027 Voter) noted the market-predicted policy path seems aligned with the Fed median. For reference money market pricing sees ~40bps of easing in 2025, less than the 50bps expected by the Fed. On Monday, markets will be attentive to S&P's PMI Services Final for December, Factory Orders (exp. -0.3%) and Fed's Daly. Later in the week, the focus will turn to ISM Services, FOMC Minutes, ADP, and NFP. 

G10 FX largely recouped losses endured on Thursday, with prior laggards GBP and EUR amongst the top performers. Direct newsflow continued to be light for the most part as TTF gas prices took a breather after Thursday's rally, with the Pound likely benefiting given it has the largest negative correlation with gas in the G10. Data was contained to Europe, whereby unemployment in Germany increased less than expected, leaving the unemployment rate unchanged at 6.1% despite expectations of a tick higher to 6.2%; EUR/USD heads into the weekend marginally above 1.03. Ahead for the Euro, is Germany's state CPI, with Nationwide Prelim figures later reported on Monday, as well as Final HCOB Services PMIs for Germany and the EZ. On the flip side, CAD was the weakest in the G10 with USD/CAD climbing further into 1.44 ahead of the jobs report next Friday, where expectations are for 25k jobs to get added (prev. 50.5k) and an unemployment rate rising to 6.9% (prev. 6.8%).

Havens gained on dollar selling with Yen managing to erase Thursday's losses and USD/CHF retreating from weekly highs of 0.9137 (failed to remain above 200 DMA of 0.9124), though still weakened for a fourth consecutive week. The Swiss Franc was little bothered by Swiss Mfg PMI, which came in at 48.4 in December, still in contractionary territory, although was slightly better than feared (exp. 48.3, prev. 48.5).

EMFX: USD/CNY continued its march higher above 7.3, a level not seen since 2023 and a level that the PBoC sought to put a floor at. Overnight the PBoC said it plans a policy overhaul as pressure mounts on the economy and said it was likely it would cut interest rates from the current level of 1.5% at an appropriate time, according to FT. Meanwhile, later reports noted that meetings between the PBoC and institutional investors have become regular recently, summoning fund managers to warn against frenzied buying of govt bonds that resulted in yields at record lows. Elsewhere, softer-than-expected Turkish CPI weighed on the Lira, with USD/TRY climbing deeper into 35.0. ING notes, that despite the start of the FX carry-cutting cycle, TRY remains attractive, which should keep market attention this year.

03 Jan 2025 - 20:57- ForexData- Source: Newsquawk