Daily Market Update

USD Holds its Breath Ahead of Busy Week

February 12, 2024

As many markets in Asia remain closed for the Lunar New Year holiday and the global data calendar remains quiet until tomorrow, the United States Dollar is in fairly tight and familiar ranges this morning.

Overview

CPI revisions last Friday made remarkably little impact on USD pricing across the board as any changes to previous readings were negligible, doing little to alter market expectations for the Federal Reserve’s easing cycle likely to begin later this year. US stocks also continue to hit record highs, with the S&P 500 closing above 5,000 for the first time Friday.

While market easing expectations have come more into line with those of the Fed itself recently, many economists are now questioning whether monetary policy may be too restrictive for current financial conditions. The economy does remain quite strong holistically, sure, but can it retain such strength in the face of a prolonged hold-steady from the Fed? A National Association for Business Economists survey published earlier this morning indicated that 21% of economists do now think Federal Reserve policy is too restrictive, the most since 2010. US CPI, due out tomorrow morning, will kick off a busy data week and will be a key indicator as to whether those economists are correct.

Following the US CPI, Wednesday sees UK CPI and Eurozone GDP, followed by UK GDP on Thursday. US CPI is likely to see a consolidation around 3% for the month of January, closer to but not yet at the Fed’s target of 2%. Progress on disinflation has slowed over the last few months, though it has definitely been impacted by the holiday season. If January continues to show stalling, the Fed’s view (that traders are begrudgingly beginning to accept) of a still-too-hot economy will largely be proven correct.

What to Watch Today…

  • US CPI, Tuesday 8:30 AM
  • UK CPI, Wednesday
  • Eurozone GDP, Wednesday
  • UK GDP, Thursday
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GBP ⇓

Ahead of key data releases on the health of the UK economy this week, the Pound Sterling is slipping slightly against the USD. Thursday’s GDP reading will show whether the UK economy managed to avoid a recession last year and will couple with labor market and inflation data on Tuesday and Wednesday, respectively. While the UK may not technically enter a recession, the fact remains the region has been teetering dangerously close to such territory for far too long for both Downing Street and the Bank of England to be comfortable with, and some downside potential for GBP remains this week.

NZD ⇓

After rallying Friday by the most in almost two months, the New Zealand Dollar is retracing and losing substantial ground against the USD this morning. Friday’s rally was prompted largely by new predictions that the Reserve Bank of New Zealand will actually hike interest rates later this month, moving in contrast to nearly every other major central bank in the world. NZD has been unable to hold all its gains, though, as many Asian markets remain closed and geopolitical risks once again weigh on risk sentiment.

 

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