If data dependence is the name of the game, this week is giving us no short supply of points to depend upon.
Overview
The United States Dollar has largely tinged a touch negative after the European Central Bank’s policy announcement this morning, followed 15 minutes later by the US’s Q4 GDP release. While gaining against the Euro and Swiss Franc, USD is losing a touch of ground against most other currencies. ECB President Christine Lagarde’s comments, while impacting the EURUSD pair and a couple of other regionally appropriate currencies, are not the star of the morning.
This morning’s GDP release for the US, on the surface, showed an economy that continues to be surprisingly healthy. The US economy grew a surprising 3.3% over the course of last year and 2.5% in the fourth quarter alone. This is, without a doubt, a very healthy reading, and as a rematch of the 2020 election becomes increasingly likely this year, domestic politicians in President Joe Biden’s administration will tout this number heavily as it’s substantially above expectations. The GDP price index also fell to just 1.5%, showing continually slowing inflation. The Federal Reserve’s March meeting is effectively ‘live,’ meaning odds markets are split on whether the central bank will hold rates steady or begin to cut. There were some underlying figures this morning, though, that showed weakening demand through multiple sectors, a more forward-looking indication of where 2024 may take us. This is prompting USD to have some weakness across much of the G10.
Initially, this morning, the ECB’s decision to hold interest rates steady was a non-event, as this was largely expected. Christine Lagarde’s comments after the fact, however, have markets wholly unconvinced that she and her board are willing to keep interest rates at their current level until the summer, as she has continued to espouse. Wagers on the ECB now expect 138 basis points of easing this calendar year from the ECB. As has become more common, it looks like the Federal Reserve next week will spark more fireworks than its overseas peer. Important to note: Lagarde did highlight that geopolitical risks are tilted to the upside, which could prompt the ECB to lower interest rates before Lagarde sees inflation on track to target. All told, while Lagarde is attempting to maintain her relatively hawkish stance, markets see Eurozone growth as more important and running contrary to that of the US.
This busy week isn’t over just yet, with US PCE deflator data due out tomorrow morning. Though we won’t get Fed official commentary to go with it, the likelihood of a downside surprise just went up and could prompt a return to expectations of more cuts from the Fed.
What to Watch Today…
MXN ⇑
After taking fairly heavy losses through the front half of this week, the Mexican Peso is re-gaining ground against the USD this morning. Most emerging market currencies are strengthening today, continuing to find optimism after stimulus measures taken by China boosted market sentiment. Mexico’s status after 2024 remains quite up in the air, however, and USDMXN will likely be rocked by election chatter throughout this year. Traders have already begun to reposition based on the possibility that Donald Trump will win the US presidential election and prompt MXN to suffer.
CAD ⇑
After suffering its worst slide in more than a week following the Bank of Canada’s decision to hold interest rates steady yesterday, CAD is fighting back this morning and gaining a slight bit of ground against USD today. These positive moves are dampened, however, by dismal payroll data from our neighbors to the north that showed the Canadian economy lost more than 85,000 jobs in the month of November. The Bank of Canada isn’t really expected to cut interest rates until the summer, though, as inflation remains high in the region.
