November 12, 2024

“With the dollar still catching a tailwind from Trump’s election victory last week, the euro is threatening a one-year low should it fall further. Its downward momentum continues this morning, and the market is looking to tomorrow’s US inflation data as the week’s key risk event.”

Tim Hallinan – Trading Director

USD

The dollar has made further gains across the board this morning, as investors build up their positioning for the stronger growth, hotter inflation, and higher terminal interest rates associated with a Trump presidency. That macro outlook is being priced into equities, too, where the major indexes hit fresh record highs yesterday. Today is relatively light on data, and it is tomorrow’s CPI report that will be the key focus for Fed pricing this week. But we do see the NFIB small business index this morning, which is expected to edge higher. The most-watched component of the index is hiring plans, which tends to be a solid predictor of economy-wide private payrolls growth. We also get speeches from the Fed’s Waller and Barkin this afternoon.

GBP

Sterling climbed to a more than two-year high against the Trump-hit euro yesterday afternoon, but it has dropped off this morning and hit a three-month low versus the dollar. That is despite stronger-than-expected wage growth this morning that has been broadly supportive for gilt yields. Ex bonus wage growth fell to slightly higher than the consensus at 4.8% while vacancies dropped for the 28^th consecutive month and unemployment rose from 4.1% to 4.3%. The unreliability of the employment data means that markets have all but dismissed it as a useful signal on the labour market and the Bank of England rate path, and the BoE has recently put far more emphasis on services inflation over the wage data. The conclusion for markets is that the quarterly pace of rate cuts currently priced remains the right position to take. The implied probability for a December rate cut is stable at around 20%, and Huw Pill may reinforce that low figure this morning given his hawkish tilt.

EUR

The euro continues to plumb to new lows and is threatening a push towards the 1.05 mark this week. The euro’s underperformance appears to be down to some combination of a) the eurozone’s wide trade surplus with the US and increased sensitivity to tariffs, and b) political instability in Germany. On the latter, a February general election is looking increasingly likely now that the final partner from Scholz’s coalition has joined the opposition in calling for an earlier no confidence vote. Today, the German ZEW index is expected to hold steady, presumably due to the offsetting effects of the Q3 growth surprise and the two aforementioned weaker factors. ECB speakers Holzmann and Centeno also take to the podium, where questions are likely to surround the impact of tariffs on the ECB’s rate path.

Markets

US stocks hit fresh records yesterday but it was clear that the Trump trade momentum was slowing in the equity market, with the S&P 500 squeezing out only a 0.1% gain on the session. European stocks bounced back, meanwhile. The FTSE 100 rose nearly 0.7% while the Euro Stoxx 50 climbed over 1%.

Main Economic Events (All Times CET)

8:00am: UK Wage Growth & Unemployment Rate
11:00am: German ZEW Economic Sentiment
12:00pm: US NFIB Small Business Index

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