The USD is a little softer again overall on the session as currencies— mostly—regain a little more ground from Tuesday’s losses. US yields continue to drift, with the added impetus today of weak Japanese and UK growth (plus softer than expected Australian jobs) data weighing on global bond yields. Stocks are in the green, cheered by the S&P 500 regaining the 5000 level, just about, yesterday.

In the FX space, the JPY and CHF are outperforming modestly, with weak Japanese growth data—the country recorded an unexpected, second consecutive contraction in GDP in Q4 (-0.4% ann.)—failing to divert USDJPY from tracking the softer trend in US yields. The GBP is, however, underperforming after preliminary data showed the UK economy declining 0.3% in Q4 after a 0.1% drop in output in Q3.

US 10Y yields have given back more than half of the jump seen around the CPI data while the DXY has dropped about a third of those gains so some additional USD softness may follow in the short run, at least. The DXY still looks very fully valued, if not overvalued, based on spreads alone.

US data releases this morning include Retail Sales (expected down 0.2% M/M), regional manufacturing activity surveys from the NY and Philly Feds, Import Prices, weekly claims data, Industrial Production, Business Inventories and the NAHB Housing Market Index. There are some Fed speakers (Waller on the USD’s international role and, later, Bostic on the policy outlook—both are voters) plus comments from BoE, ECB and RBNZ officials.

US Retail Sales are expected to drop 0.2% M/M in headline terms (core sales are expected to rise 0.2% M/M though) while the regional Fed surveys are expected to recover somewhat from the weak readings seen in January. Softer than expected data will further temper the rise in US yields and the USD. - SB

EUR/USD - The EUR is grinding slowly back higher after yesterday’s lows. The EUR has a slightly better undertone in the near term and has some backing from a slight correction in EZ/US 2Y spreads which touched –190 bps Tuesday but have narrowed back to –184bps today. Around the edges of the FX market, the US election is starting to flex. The spread between EURUSD 6m and 9m vols has increased sharply in the past couple of weeks as markets have become attuned to Trump’s tariff talk. The spread is nearly half a vol, the widest in 10 years.

GBP/USD - UK data reports today were mixed overall. December output data was soft, but not as soft as expected, with better industrial sector activity helping limit the dip in monthly GDP to –0.1%. The December trade deficit was narrower than forecast (-13.9bn), but November was revised up. Q4 GDP fell 0.3% Q/Q, dumping the economy into a mild recession as exports continued to slump. Sterling has been quite resilient in the face of the weak growth data.

USD/CAD - The CAD is little changed on the session. The positive risk tone and generally softer USD has nudged the CAD back to the lows in the area the of past couple of sessions but there is not much conviction under the move at this point. Softer crude prices are perhaps slowing CAD gains at the margin. Absent any major domestic data, the CAD will continue to be—largely—pulled around by the broader risk tone and overall USD direction. Note that the BoC announced that DG Gravelle will give an update on balance sheet normalization on March 21st. - SB