January 06, 2025

“US non-farm payrolls and eurozone inflation are the major focuses this week as normal service returns after the holiday period. The US dollar is shedding some strength this morning after rallying significantly in low liquidity last week.”

Tim Hallinan – Trading Director

USD

The dollar index has gradually been giving up some of last week’s gains as liquidity returns and the market catches up with a contraction in the US yield advantage, having fallen 0.6% from its two-year high last Thursday. Interestingly the Canadian dollar is the G10’s best performer this morning after reports from Reuters and the Globe and Mail suggesting that Prime Minister Trudeau’s resignation could come as soon as today. The polls suggest that the Liberals are very likely to lose the election that must come before October this year.

This week is data heavy and continued strength in the dollar will depend on the labour market holding up. Friday’s December payrolls report is the headline and the consensus is looking for 160K jobs and a stable unemployment rate at 4.2%, which would be strong enough to keep the market confident in a slow and steady cutting path. We also get some job openings data, ADP payrolls, ISM services, and consumer sentiment report.

GBP

Sterling is up 0.4% this morning as it recovers some of last week’s losses, but the pound will rely on some weakness in the US labour market data to carry this momentum through the week. Remember that GBPUSD ended 2024 near its lowest since May as a growth slowdown, a surprising amount of support for a rate cut at the December BoE meeting, and a strong dollar triggered a 7% drop in the final quarter. It is a relatively quiet calendar in the UK until next week, with only a construction PMI and some BRC retail sales figures for traders to chew on.

EUR

The return of more usual trading conditions has been positive for the battered euro, and it is back above the 1.03 handle this morning after hitting a two-year low last Thursday. CPI figures from Germany this afternoon and the eurozone tomorrow morning will guide ECB expectations and yields this week, with markets currently pricing in four rate cuts by the end of the year given the weak growth outlook. The survey estimates point to an uptick in headline inflation to 2.4%, but core is expected to remain steady at 2.7%. Switzerland also expects a CPI report tomorrow morning, where another deflationary figure of -0.1% on a monthly basis will likely lend support to expectations for near-zero interest rates by June.

Markets

Risk appetite returned in the US on Friday and both the Nasdaq and the S&P 500 rose more than 1% to snap five-day losing streaks, while European stocks suffered a broad decline that included a 0.9% drop in the Stoxx 50 index.

Main Economic Events (All Times CET)

10:30am: Eurozone Sentix Investor Confidence
2:00pm: German CPI Inflation
4:00pm: US Durable Goods Orders

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