Here is what you need to know for Friday 27 January:
There was something for both the bulls and bears on Thursday following a slew of data in the US that was generally solid although continues to point to a decelerating growth outlook with slowing inflation, prompting traders to continue to bet on a dovish Federal Reserve when it meets on its interest rate decision next week, February 1.
Gross Domestic Product increased at a faster-than-expected 2.9% annual rate in the fourth quarter of last year as consumers boosted spending on goods, the US Commerce Department said.
Inflation data also gave rise to prospects of dovish Fed with Personal Consumption Expenditures growth slowed to 2.1% year over year from 2.3% in the prior quarter while the GDP price index decelerated to 3.5%. There will be more data on Friday with Core PCE, the Fed's preferred inflation measure whereby prices likely accelerated to a 0.3% MoM pace in December, although analysts at TD Securities argued that a 0.4% gain can't be discarded. The YoY rate likely slowed to 4.5%, they said, suggesting prices continue to moderate but remain sticky at high levels.
The US Dollar index, DXY, rose 0.246% to 102.18 the high from a low of 101.504 while futures are pricing a 94.7% probability of a 25 basis points hike next Wednesday and see the Fed's overnight rate at 4.45% by next December. This is lower than the 5.1% rate Fed officials have projected into next year on market expectations of a rate cut. US Treasury yields also rose with the yield on 10-year Treasury notes rising to 3.52%
GBP/USD which has lost 0.1% in value so far this week in its first weekly decline since the week ending December 23 gave two-way business in the US session. Initially, the bears took out the Lonodon lows but the price rallied in and around the US data after an initial knee-jerk drop. The bears finally took back control from around the highs of the day and the price dropped 50 pips before rallying back into the day. It travelled between 1.2344 and 1.2430. EUR/USD ranged between 1.0850 and 1.0929 in a similar fashion. USD/CAD dropped from 1.3407 and kept falling throughout the day as commodities faired well in a soft US dollar environment, scoring a low of 1.3303. USD/JPY rallied from 129.02 to 130.61 ahead of Japan Consumer Price Index in Asia on Friday. Commodity markets continued to be driven by optimism over the return of Chinese demand and a persistently weaker US Dollar. Oil retained its firmer tone, with WTI up 1.1% to $81.2/bbl. Gold fell 0.8% to $1,930.8/oz. Bitcoin was stable ahead of the US data near $23,200 following yesterday’s volatility, dropping a few hundred US Dollars after the numbers came out before reversing back above $23,000.
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