EUROPEAN FX UPDATE: USD broadly firmer vs. peers ahead of FOMC, GBP lower post-inflation

USD: DXY +0.1%; 107.00

• The main event for today will be the FOMC rate decision and Fed Chair Powell's press conference. The Fed is widely expected to cut rates by 25bps to 4.25-4.50%. Attention will be on any clues for future decisions given concerns on rising inflation risks, with inflationary pressures potentially set to rise due to President-elect Trump's proposed tariffs and tax cuts. The 2025 dot plot is expected to show 3 cuts vs. prev. 4 cuts. DXY is currently hovering around the 107 level and sat within yesterday's 106.69-107.08 range.

EUR: EUR/USD U/C; 1.0494

• EUR/USD continues to linger around the 1.05 mark and is currently within yesterday's 1.0479-1.0534 range. ING is of the view that there is a good chance the pair will continue to hover around 1.05 for the rest of the year. Fresh macro drivers for the EZ have been lacking during today's session other than a speech from Chief Economist Lane which didn't provide much new for markets with the central banker reiterating the GC's meeting-by-meeting approach and refusing to commit to a specific policy path. Elsewhere, his colleague Wunsch remarked that he guesses rates will land somewhere around 2%.


• EUR/USD opex: 1.0450 (780M), 1.0490 (628M), 1.0500 (1.7BLN), 1.0510 (371M), 1.0525-35 (581M), 1.0550 (1.2BLN)

JPY: USD/JPY +0.2%; 153.72

• JPY softer vs. the USD and in-fitting with global peers. Markets await tomorrow's BoJ policy announcement. Expectations and recent source reports have been increasingly leaning towards the BoJ holding rates at 0.25% at the upcoming meeting, with 58% of economists polled by Reuters (in a Dec 4-11th survey period) expecting such an outcome, up from 44% in the last poll. Market pricing currently points to a 77% chance of a hold vs a 23% chance of a 25bps hike at the upcoming meeting, with the first 25bps hike not fully priced in until Q2 2025. USD/JPY is currently caged within yesterday's 153.16-154.34 range.

GBP: GBP/USD -0.2%; 1.2681

• Cable back below 1.27 after the latest UK inflation data showed headline Y/Y CPI in November rising to 2.6% from 2.3% (consensus 2.6% MPC forecast 2.4%), core Y/Y CPI increased to 3.5% from 3.3% (consensus 3.6%) and services inflation holding steady at 5.0% (consensus 5.1%, MPC forecast 4.9%). The release had little sway on pricing for tomorrow's announcement (currently around 2bps), however, around 57bps of easing is currently priced in vs. around 53bps pre-release as some of the readings were a touch below consensus. Cable has been as low as 1.2681, stopping just shy of its 21DMA @ 1.2674 and yesterday's low @ 1.2666.

Antipodeans: AUD/USD -0.4%; 0.6313. NZD/USD -0.3%; 0.5730

• Both at the foot of the G10 leaderboard vs. the USD with both pairs hitting fresh YTD lows amid the broader cautious sentiment, weakness in base metals, and potential headwinds as Australia expects its budget deficit to increase in 2025/26. For AUD/USD, 0.6310 is the low watermark thus far with 0.63 the next obvious downside target; not breached since 26th October (0.6270 was the low that day). NZD/USD's low print sits @ 0.5731 with the next target via the 26th October @ 0.5725.

18 Dec 2024 - 09:55- ForexData- Source: Newsquawk