Daily Market Pulse

The USD drifted about 0.3% lower yesterday while remaining above its closing level from Friday’s NFP-induced gains, trading unchanged overnight. Yesterday, Federal Reserve Bank of Cleveland President Loretta Mester said policymakers will probably gain confidence to cut rates “later this year” if the economy evolves as expected. Federal Reserve Bank of Philadelphia President Patrick Harker (non-voter in 2024) spoke after markets closed yesterday, saying “a soft landing for the US economy is in sight, pointing to falling inflation and a still-strong labor market.” Investors currently see just over 80% odds of a first US rate cut coming by the May Fed decision.

EUR/USD enters the North American session up 0.35% from yesterday’s open. German industrial production data missed estimates while Spanish industrial output also slid from its prior reading. ECB Executive Board member Isabel Schnabel said the central bank should be patient before loosening borrowing costs, citing sticky services inflation, a resilient labor market, a notable loosening of financial conditions and tensions in the Red Sea. Rates markets currently see over a 50% chance of an ECB rate cut by the April meeting.

GBP/USD’s 2-day gains of nearly 0.8% bring the currency back to last week’s closing levels, buoyed today by UK housing price data that rose at its strongest pace in January since the middle of 2022. Bank of England Deputy Governor Sarah Breeden said she’s growing increasingly confident about the strength of the UK economy but needs to see more evidence inflation is falling before voting to cut interest rates. Rates markets see just odds of just 35% that the BOE will cut rates by its May meeting.

The Canadian Dollar’s 2-day gains of 0.6% have also brought USD/CAD back to last week’s closing levels. Domestic trade data released this AM missed estimates, with the prior reading also revised lower. BOC Governor Macklem said the bank is shifting its focus to how long rates need to remain restrictive, while reiterating that it’s too early to consider easing. Seeing the path to 2% inflation “likely to be slow”, he acknowledged the need for the BOC to see sufficient downward momentum in underlying inflation. The next key data release comes on Friday with January’s employment figures.

USD/BRL is 0.25% lower than last week’s post-NFP closing levels, while USD/MXN is about 0.6% lower. Brazilian retail sales slowed in December, missing estimates, with domestic inflation readings coming tomorrow. Investors await the Central Bank of Mexico’s rate decision tomorrow where they are set to hold the policy rate at 11.25% amid core services inflation stickiness.