February 26, 2024

“A dense data calendar awaits the FX markets this week, with headline inflation data in the US and the eurozone to provide some clues the rate cut path this year. A strong US core PCE figure is the event to watch.”

Sam Cornford – Head of Trading

Main Headlines

With lawmakers again deadlocked on a path forward for government funding, President Joe Biden is scheduled to convene with congressional leaders on Tuesday to address an impending partial shutdown deadline set for Friday, the White House confirmed on Sunday. The meeting will involve key figures from both Democratic and Republican parties in the House and Senate, focusing on the critical need to pass a government funding bill before midnight on Friday.

Last month, British employers posted the lowest number of job advertisements in nearly three years, signalling a cooling labour market, according to data from recruitment firm Adzuna released on Monday. The figures revealed a 15% decline in job postings compared to the previous year, with 867,436 job opportunities advertised across Britain in January. This marked the lowest level since April 2021 and a notable drop from over 1 million postings in the same period a year ago.

GBP

Friday proved to be a much quieter day for sterling as it capped off a 0.6% weekly gain against the dollar despite little fresh domestic news flow. A sparse data calendar should see the pound take its cues from headline developments in the US and Europe again this week, although there will be some impulses from mortgage and lending data and several policymaker speeches. Today, comments from the Bank of England’s Breeden and Pill this morning should guide traders’ policy easing expectations, which currently sit at around 70bps this year. British central bankers have become increasingly receptive to discussing rate cuts, with Governor Bailey all but endorsing the market-implied rate path last week in testimony to Parliament.

EUR

The February CPI report on Friday will be a major test for the euro’s 0.4% gains won on the back of a global AI-fuelled rally in risk assets last week. An improving growth outlook and some hawkish rhetoric from Lagarde and Nagel helped to lift the single currency to levels near their highest in February, but the ECB is set to be within touching distance of its 2% target this week, with the consensus expecting Friday’s print to be trimmed to 2.5% from 2.9%. Undoubtedly this will open up some space for the ECB doves to come out in full force. Today, Lagarde will give her views to the EU Parliament this afternoon, where she is unlikely to waver from the cautious tone struck last week.

USD

The dollar notched its first weekly loss in six at Friday’s close, as bumper AI earnings sent riskier assets rocketing around the globe and chipped away at the greenback’s safe haven appeal. The strong data provided all the ingredients for a further bull run, but the headline movements in the equity markets detached FX from the front-end rate dynamics that were ultimately dollar-positive. The focus is firmly on the US this week and Thursday’s core PCE price index in particular, which should land at 0.4% month-on-month versus December’s 0.2% print and further bolster the higher-for-longer narrative, although there is a broad expectation that this is more of a data blip than a directional trend. The second estimate of Q4 GDP comes on Wednesday, followed by unemployment claims on Thursday and the ISM manufacturing PMI on Friday. New home sales data is the only release in the diary today, expected to tick up to 680K.

Markets

The post-Nvidia AI-fuelled stock rally tailed off on Friday as the major indexes consolidated gains. China’s CSI 300 index managed to clinch a ninth straight daily gain, though, in its best run since January 2018. Markets will be keeping a close eye on whether a bout of profit-taking follows or if the bullish momentum has further to run. US and European equity futures point to a modestly weaker open this morning.

Main Economic Events (All Times CET)

10:00am: BoE’s Breeden speaks
12:00pm: UK CBI Realised Sales
12:00pm: BoE’s Pill speaks
4:00pm: US New Home Sales
5:00pm: ECB President Lagarde speaks

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