TOP FX NEWS: 16 Jan 2024

CURRENCIES:

GBP/USD Analysis and Charts:

• Falling UK wages provide optimism for the Bank of England.
• Cable faces pressure due to USD strength.

Key Points from ONS Labour Market Overview:

• UK wage growth decelerated in November.
• Unemployment rate remained unchanged.
• Despite slowing wage growth, it remains high enough to deter an immediate UK rate cut.

Latest UK Implied Rates:

• First UK Base Rate cut anticipated in May.
• Predictions indicate a total of 131 basis points in cuts for the upcoming year.

US Dollar Strength:

• The US dollar shows strength after a long weekend.
• US dollar index reaches a 10-day high.
• Factors include slightly higher US Treasury bond yields and geopolitical concerns in Ukraine and the Red Sea.

GBP/USD Technical Levels:

• Cable approaches a support level at 1.2667.
• Potential breakdown may target the 38.2% Fibonacci level at 1.2628, prior lows cluster around 1.2610/15, and the 50-day simple moving average at 1.2608.
• Upside movement may face resistance at 1.2742, with further hurdles near recent highs up to just under 1.2800.

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STOCK MARKET:

Market Overview:

• European stocks and US futures decline.
• Dollar reaches a one-month high, impacting various market sectors.
• Bonds experience a fall as central bank officials resist aggressive interest rate cut expectations.

Stock and Futures Movement:

• Stoxx Europe 600 index heads for a five-week low, led by declines in retailers and banks.
• S&P 500 futures slip by 0.6%, Nasdaq 100 contracts drop by up to 0.9%.
• Treasuries decline across the curve, with ten-year yields and the 2-year debt rising about six basis points each.

Central Bank Comments and Rate Cut Expectations:

• European Central Bank Governing Council member Francois Villeroy de Galhau emphasizes it’s too early to declare victory on inflation.
• Traders await Federal Reserve Governor Christopher Waller’s speech for cues on the timing of a Fed rate cut, with a two-in-three chance seen in March.
• ECB Governing Council member Robert Holzmann and President Christine Lagarde express uncertainty about assured rate cuts, citing lingering inflation and geopolitical risks.

UK Economic Data:

• Economic data in the UK supports the case for Bank of England rate cuts.
• Wage growth cools at one of the fastest paces on record, leading to a weakening of the pound against the dollar.

Corporate Results:

• Morgan Stanley and Goldman Sachs Group Inc. expected to report continued lull in investment banking activity.
• High borrowing costs, geopolitical tensions, and recessionary risks dampen deal-making.

Global Economic Outlook and Oil Prices:

• Oil prices remain steady amidst Houthi attacks in the Red Sea, contributing to tensions in the Middle East.
• Global benchmark Brent holds around $78 a barrel, while West Texas Intermediate trades below $73.

MSCI Asia Pacific Index:

• Slides 1.3%, halting a three-day rally.
• Hang Seng Index faces the worst day in about two months due to property-sector funding plans impacting bank shares.

Upcoming Market Events:

• Key events this week include Germany ZEW survey expectations, US Empire Manufacturing, and earnings reports from Goldman Sachs Group Inc. and Morgan Stanley.
• Federal Reserve Governor Christopher Waller is scheduled to speak on Tuesday.

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