Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Euro slips from recent highs
The euro was mostly weaker overnight after the European Central Bank cut interest rates for the fifth time in less than a year.
Investor sentiment around the European economy has been overwhelmingly negative, with recession fears, weak growth prospects, and persistent geopolitical risks dominating the narrative.
However, much of this pessimism is already reflected in asset prices, creating an environment where the bar for positive surprises is set exceptionally low.
The ECB cut its refinancing rate from 3.15% to 2.90% — well down on the 4.50% maximum from last year.
The EUR/USD fell 0.3% while the euro fell from recent one-month highs versus the Australian and NZ dollars.
US stronger despite weaker GDP
In other markets, the US dollar was stronger, even as December-quarter GDP numbers came in below expectations.
The first reading of US GDP was reported at 2.3% in annual terms, down on the 3.1% last quarter, and below forecast for 2.7%.
However, the weaker number didn’t impact the US dollar, with the world’s most traded currency higher for a third day as it rebounded from key support at the 50-day moving average and confirmed the USD index remains in an uptrend.
The USD was also helped by yesterday’s Federal Reserve decision which signalled the US central banks was less likely to continue cutting interest rates.
The AUD/USD and NZD/USD both fell 0.5%, while USD/SGD gained 0.2%.
US PCE, German CPI looms
Looking forward, key inflation readings loom.
From the US, the personal consumption and expenditure price index, is due on 12.30am AEDT, with markets looking for a smalling increase month-on-month from 0.1% to 0.2%.
This forecast increase partially explains the Fed’s concern around inflation and a higher reading can provide further uplift to the USD.
Before this, German monthly CPI is due, with a drop from 0.5% to 0.1% forecast, illustrating why the ECB is keen to cut rates.
Aussie, kiwi extend recent moves lower
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 27 Jan – 1 Feb
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
