Daily Market Pulse

The USD traded mixed yesterday, closing marginally lower on the day despite early North American session gains on the back of a JOLTS report showing healthy labour demand. The ratio of openings to unemployed held steady at 1.4 - a figure that has eased considerably over the past year - indicating labor supply and demand moving towards better balance in response to the higher rate environment.

Price action in the G10 space is expected to be limited ahead of today’s FOMC rate decision at 2PM. Moderate USD gains overnight reversed with the 8:15AM ADP employment change print that missed expectations (107k job adds in January, 150k expected), consistent with a gradually cooling labor market. Investors have been paring odds of a March hike through January and now see less than 50% odds of a first rate cut coming by the March decision.

The EUR/USD rose 0.2% yesterday and is up nearly 0.5% from Monday’s 1.5-month lows, making the currency a relative outperformer this week. Eurozone aggregate Q4 GDP released yesterday showed flat growth, avoiding an expected 0.1% contraction. With confirmed economic underperformance, the ECB can be expected to be (self-admittedly) largely focused on sustainably bringing inflation back to target. Tomorrow brings the next Eurozone inflation reading, with both headline and core releases expected to moderate from last month.

The GBP/USD fell almost 0.1% yesterday and sits unchanged to yesterdays close in the early North American session. With the Bank of England missing its inflation target by a wider mark than its G10 peers, investors are keen to judge the degree to which the BOE will push back on rate cut expectations. The central bank makes its rate decision tomorrow where the main policy rate is expected to be held at 5.25%, the release accompanied by its quarterly economic review and forecasts.

The Canadian Dollar rose 0.1% yesterday, bringing its gains since the BOC decision a week ago to nearly 1%. Softer crude and US equity futures dropped the CAD about 0.25% ahead of today’s domestic GDP data release, where a minor beat (1.1% year-over-year versus 1.0% expected) sent the USD/CAD back towards yesterday close levels. The Canadian economy appears on track to bounce back in Q4, theoretically allowing the BOC some wanted flexibility with respect to timing its first rate cut.

The Japanese Yen fell just shy of 0.1% yesterday. Overnight, the summary of opinions release from last week’s BOJ rate decision meeting signaled the central bank is closer to raising interest rates for the first time since 2007. While there was no apparent consensus over the specific timing for such a move, some members indicated the conditions necessary to support policy tightening are improving. The BOJ’s next policy decision comes March 19th.