Grab the Popcorn
- US President Donald Trump is set to address the World Economic Forum today via live video link. Ahead of Trump’s speech, tune in to our webinar (details below).
- Norges Bank is expected to keep rates steady at 4.50% and still signal plans to start easing in March.
- Turkey central bank is expected to cut rates 250bps to 45.00%.
You’re invited
Webinar: 2025 in focus: Navigating evolving macro-trends | Register Here
Thursday, 23 January | 7:00 - 7:45 PDT | 10:00 - 10:45 EST | 15:00 - 15:45 GMT | 16:00 - 16:45 CET
USD regained some grounds, US stocks edged higher and 10-year Treasury yields are consolidating around 4.60%. US economic outperformance remains a key theme underpinning a stronger USD. The January PMI figures for major economies, due tomorrow, will offer a timely update on relative growth momentum trends.
US weekly initial jobless claims (1:30pm London) and the Kansas City Fed manufacturing index (4:00pm London) are unlikely to trigger big financial market moves. Instead, markets will move to President Donald Trump’s tune when he speaks at the World Economic Forum today (11:00am New York, 4:00pm London).
GBP/USD remains under downside pressure. The UK January CBI business optimism is up next and unlikely to offer GBP much support (11:00am London). In October, this quarterly measure of business optimism dropped to a two-year low at -24 indicative of a subdued business investment backdrop.
EUR/USD is directionless near 1.0400. The ECB is on track to deliver another 25bps rate cut next week to 2.75% despite hawkish comments by Governing Council member Robert Holzmann. Yesterday, Holzmann said that it would be better for the ECB “to wait a bit more” before lowering interest rates again because inflation gauges are still very strong. But added “I can be persuaded [to cut rates next week] if there are good arguments.” Holzmann’s comments aren’t surprising. He was the sole member to oppose the ECB rate cut last June. He’s likely to do the same next week. In contrast, ECB President Christine Lagarde stuck to the dovish guidance emphasizing the downside risk to Eurozone growth and confidence that the disinflationary process is continuing. Bottom line: ECB/Fed policy trend is an ongoing drag for EUR/USD.
JPY ignored Japan’s December trade data. Japan’s cumulative merchandise trade deficit narrowed to -¥5.15tn (or -0.8% of GDP) vs. -¥5.85 in November suggesting the drag on the economy from net trade should ease. Meanwhile, the cumulative trade surplus with the US narrowed slightly in December but remains historically high at over ¥8.6tn (1.4% of GDP), placing Japan’s economy at a disadvantage in case trade tensions with the US unfold.
JPY will take its cue from the outcome of tomorrow’s Bank of Japan (BOJ) meeting. Markets have virtually fully priced-in a 25bps rate hike to 0.50% as BOJ officials seemed more confident on wage growth gathering momentum. The BOJ is also set to publish its updated Outlook Report and is expected to raise inflation projections as both core (less fresh food) and core (less fresh food and energy) are tracking higher than it anticipated back in October. Japan’s December CPI print is due later today (11:30pm London). In our view, the bar for a hawkish surprise is high because the BOJ will want to avoid unsettling the markets like it did July. The implication is JPY will remain under downside pressure because the money market should continue to imply the BOJ policy rate to peak at 1.00% over the next two years.
USD/NOK is trading sideways. Norges Bank meets today and is widely expected to keep rates steady at 4.50%. At the last meeting December 19, Norges Bank kept rates on hold at 4.50% and indicated that “the policy rate will most likely be reduced in March 2025.” The Norges Bank will likely stick to this guidance as inflation is tracking below the Norges Bank projection. If so, NOK is vulnerable to a modest kneejerk drop as markets adjust to fully price-in a rate cut in March (currently 70% priced). Beyond today’s price action, Norway’s economic outperformance favors a stronger NOK versus SEK and EUR.
USD/CAD is firmer around 1.4400. Canada November retail sales is the domestic focus (1:30pm London). Statistics Canada’s advanced retail indicator suggests sales were relatively unchanged in November after rising 0.6% in October. USD/CAD has scope to overshoot to fresh cyclical highs supported by FED/BOC policy trend, risk of all-out trade war between Canada and the US, and the Trump administration’s focus to lower energy prices.
USD/TRY is grinding slowly to new highs near 35.6625. Turkey central bank meets today as is expected to cut rates 250bps to 45.00%. The bank started easing at the December 26 meeting after reducing the policy rate from 50.00% to 47.50%. Easing inflation pressures leaves room for the bank to slash rates further. Headline CPI fell to 44.38% y/y vs. 47.09% in November, the lowest since June 2023, and core dipped to 45.34 y/y vs. 47.13% in November, lowest since February 2022. The market price-in the policy rate to decline to 23.75% in the next three years.