OUR SUMMARY
Overnight, US Treasury Secretary Scott Bessant expressed his support for a strong USD, confirming there are no plans to alter the Government’s debt-issuance strategy. In addition, hawkish comments from Fed member Lorie Logan suggested that interest rates might already be at a neutral level, implying there could be no further rate cuts if inflation continues to ease. As a result, the USD begins the day on a strong note.
Looking ahead, today’s focus shifts to US job numbers, with an expected 170,000 job additions for January. However, it’s important to consider that January data is often influenced by seasonal factors like weather, as well as disruptions such as the LA wildfires this year. Also in focus are the annual payroll number revisions. If these adjustments are significant and downward, we may see downward pressure on the USD by the end of the week.
Another key event today is the ECB’s neutral rate report. If the report suggests a higher neutral rate than expected, it could signal that ECB rate cuts may be more limited than the market anticipates. ECB member Schnabel has suggested the neutral rate should be between 2% and 3%, while Olli Rehn indicated a midpoint of 2.50%. Currently, the ECB rate sits at 2.75%, but markets are pricing in a reduction to 1.75% by year-end. A higher neutral rate forecast could push the EUR higher.
In the UK, all attention will be on BoE member Huw Pill’s comments, as markets look for any indications or updates following yesterday’s BoE meeting.
