Daily Market Pulse

The USD is set for its worst performance since Covid as the market is still anticipating the Fed lowers interest rates in the new year. Most of the drop occurred in the fourth quarter on increasing views the Fed will relax policy as many inflation indicators have softened.

The market is still pricing in 150 bpts of cuts in 2024, with the first cut priced in for March. However, SOFR (Secured Overnight Financing Rate, the new “LIBOR”) fixed at 5.39%, matching a record high. Volatility in funding costs at year end is to be expected, but the jump in rates has caught the market scrambling for short-term financing, and the USD has somewhat benefited.

Overnight news that Maine becoming the second state to block Trump from running in the state’s Republican primary has dominated headlines.

EUR Has been volatile at year end, with bullish (options) sentiment the highest since July. News out that China will adjust the weightings EUR down of currencies in its currency basket did not seem to have an impact. Germany’s economy may slowly gain momentum in 2024 after a modest shrinking in ’23. The big question remains around household consumption as that is a primary driver of growth. Continued tight monetary policy and weaker global demand will continue to drag investment and exports, so any recovery forecasts are susceptible to interpretation.

GBP While inflation in the UK has remained steady for the past 9 months, 41% of consumers say they’re feeling less financially secure than at this time last year, according to a survey from KPMG. This is somewhat contrary to a Barclaycard survey showing spending increased 4.1% in 2023, which is much less than the 10.6% gain last year. This indicates households have cut back on retail purchases, home improvement and restaurants.

CHF Jumped to its highest level vs the USD since 2015 when the Swiss central bank abandoned its policy to stem currency strength. The franc has outperformed all its peers, with the market view that the ECB will cut rates first.

CAD Dropped for the third day in a row as higher global bond yields lowered demand and hurts commodity prices. US two-year yields still exceed Canadian by 34 basis points, and the 10-year is +72 bpts in favor of the US.

MXN The Mexican peso continued its climb, slated to end 2023 with the biggest yearly gain on record. Next to the Columbian Peso, MXN is the second best performer among its emerging market peer group.