Daily Market Pulse

The US Dollar is rallying this morning on the back of the first Caucus election for the GOP candidate that will square off with Joe Biden. Former US President Donald Trump won with a clear landslide victory of nearly 51%.

Iowa bears a lot of importance because in the past, Trump was not able to win the state’s support in previous Caucuses. This result means that Trump could book further landslide wins in other states where he already has enough votes and supporters to become the only main candidate for the GOP.

Meanwhile on the calendar front, traders are bracing for a speech from US Federal Reserve member of the Board of Directors Christopher Waller, due out later today. His dovish comments in November moved the markets substantially, triggering substantial US Dollar weakness throughout December.

EUR/USD is down on the day as we are seeing a slight risk off tone to start the session. The notion of rate cuts being pushed back to later in 2024 and an explosive situation in the Middle East are rushing traders into safer assets. German CPI for December confirmed that prices grew by 3.7% on the year. This is an increase from the 3.2% seen in November and provides further evidence that bringing inflation in Europe to 2% will require more effort.

GBP/USD is down on the day like other major pairs. UK Unemployment remained at 4.2%, which was the reading the market expected to see. There was an 11.7k uptick in people claiming jobless benefits. The UK Secretary of State, Mel Stride MP said, “Today’s figures are more evidence the economy is turning a corner with the number of jobs hitting a record high and inactivity falling by nearly 270,000 last year.”

USD/CAD is up on the day and continues its winning streak for the fourth consecutive session, with positive market sentiment turning into risk aversion. This shift is attributed to the heightened geopolitical situation, specifically the reported missile launched by the Islamic Revolutionary Guard Corps targeting espionage centers and gatherings of anti-Iranian terrorist groups in northern Iraq near the US Consulate in Erbil. Canadian CPI was released this morning and came in bang on as expected at 3.4% YoY.

USD/MXN moves upward for the second straight day. Traders are favoring the US Dollar following hawkish remarks made by Atlanta Federal Reserve President Raphael Bostic suggested the possibility of inflation fluctuating if policymakers decide to cut rates prematurely, thereby providing support to the USD/MXN pair. He also cautioned that the deceleration of inflation toward the Fed's 2.0% target was anticipated to slow down in the coming months.

The recent data from Mexico indicates that the country is grappling with challenges. The annual inflation rate increased from 4.32% to 4.66% in December. Although the headline inflation has eased to 5.0%, it remains elevated. This high inflation rate could potentially dissuade officials of the Bank of Mexico from implementing policy-easing measures in the first quarter of 2024.