Written by Steven Dooley and Shier Lee Lim
US inflation key for the Fed
Global markets were cautious overnight ahead of tonight’s key US inflation report that could set the scene for any potential US rate cuts in March.
The EUR/USD fell 0.1% while GBP/USD and USD/JPY were both flat.
FX markets were also quieter than usual with many Asian financial centres closed for the Lunar New Year holiday.
US markets have pulled back on expectations for the Federal Reserve to cut interest rates March – the probability for a cut has fallen from 80% at the start of the year to 16% currently (Source: CME Fedwatch).
Tonight’s inflation is forecast to see headline annual inflation to fall to 2.9% – the lowest result since March 2021. However, a higher number would almost certainly end the chance for a March rate cut and could see the USD strengthen overnight.
Aussie higher, kiwi slips
The Australian dollar was higher versus most currencies overnight with last week’s warning from the Reserve Bank of Australia – saying there is more work to do in the fight against inflation – continuing to provide support for the Aussie.
The AUD/USD gained 0.1% as it neared one-week highs with the AUD/JPY leading the gains, up 0.2%, and near two-month highs.
The New Zealand dollar was lower – easing after last week’s strong gains – with the NZD/USD down 0.3% overnight. The NZD/USD fell from four-week highs.
Key NZ data is due today with inflation expectations due at 1.00pm AEDT. The Reserve Bank of New Zealand next meets on 28 February. NZ money markets see a 40% chance of a hike (source: Refinitiv).
Euro vulnerable to poor data
Europe, like the US and Japan, has seen a pick-up in data so far in 2024. Most notably, the European PMI numbers (purchasing manager indexes) saw a strong improvement in German and French manufacturing (from an admittedly very low base).
However, European Central Bank officials have warned that they stand ready to cut rates due to growth concerns.
German ZEW confidence numbers are due tonight – also recently better from a low base – but any disappointment could bring forward expectations for rate cuts and weigh on the EUR.
AUD/USD at one-week highs ahead of US CPI
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 12 – 17 February
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.
