Daily Market Update

News that weren’t keep Buck afloat

February 01, 2024

The U.S. Dollar is in familiar ranges after some major central bank meetings took place.

Overview

On our side, the Federal Reserve announced its decision to keep interest rates untouched and hinted at what equity folks did not want to hear: any future interest rate cuts will come later than Q1 and perhaps Q2.

It is important to note that Fed Chair Jerome Powell’s press conference is when major swings took place as he explained that this year might be one to dial back. Nevertheless, it was assured that consideration for a pivot in March is not on the table. As he basically delivered what we expected, the results against major dollar pairs seemed insignificant. Treasury yields and other risk assets are at low volatility.

Per Fed officials, the economy is in good shape, and the steadiness of it all makes it possible for them to continue shooting for a 2.0%-inflation target. While not being the most hawkish, the Fed is sending signals that go against a narrative that markets wanted to develop in order to feel confident in a more accommodative financial environment. The truth is, many miss the era of easy money and have not fully adjusted. Interest rates will remain high as long as there is no major domestic economic turmoil. That will keep FX flows rather sensitive to other factors that may not be related to monetary policies.

What to Watch Today…

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EUR  ⇑

The Euro is quiet after some wild moves yesterday afternoon as the Fed’s message of continuous tightened conditions was digested by markets. On the data dock earlier, inflation in the form of the Consumer Price Index for January revealed deflationary pressures as estimated coming in at (-0.4%). Naturally, it looks like a welcome sign for the European Central Bank, which is also hoping to bring its annual average inflation to 2.0%. It is now at 2.8%. Altogether, January meant a 1.1% loss for the shared currency.

GBP ⇓

Sterling is currently slightly down following the meeting by the Bank of England. As expected, the committee chose to stay put, but a few members voted to increase the benchmark rate, and one even dared vote to cut. BOE Governor Andrew Bailey remained loyal to his message that the economy can withstand keeping borrowing costs elevated. Unlike the U.S., there have been more concerning recessionary pressures, and it seems there is a growing difference in economic opinion. Throughout January, Pound was the only major currency to squeeze out a gain against the buck, climbing just half a percent.

 

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