Instimatch - FX morning commentary - 30/1/25

Good morning

The ECB cutting by 25bp is seen as a near done deal, so all eyes will be on the Lagarde’s press conference for any additional hints.

Data could turn out to be more market moving with the first estimates for Q4 growth both in the Eurozone and the US out later today. Eurozone data released ahead of the ECB meeting is likely to confirm a stagnant growth environment. This contrasts with the US where Q4 growth should come in close to 3%, boosted by a strong end to the year for consumer spending. The data should also allow for backing out monthly PCE figure ahead of the official release the next day. Other data to keep an eye on are the weekly US jobless claims.

No surprises from the Fed at yesterday’s FOMC meeting with a unanimous decision to leave the Fed funds target range at 4.25-4.5%. After 100bp of cuts through the final four months of 2024 the Fed had already signalled a desire to take time to evaluate the impact of their actions and to also gain greater clarity on how President Trump’s policy thrust may impact the economy. Powell kept all options open at the press conference, stating that policy was well-calibrated for now. Importantly, he downplayed the change in the statement's inflation language, emphasizing that it was not intended as a signal, though the initial market reaction leaned slightly hawkish, and the USD initially edged a little higher.  Attention is already turning to Friday’s December core PCE inflation data. Consensus is building that the next Fed cut will occur in March.

EUR/USD has remained largely steady with the pair holding above 1.04. Traders continue to see potential for a near-term topside to EUR/USD.

GBP FX has been in for a strong week with Chancellor Reeves’s speech yesterday not spurring renewed fiscal policy concerns in her first high-profile appearance since delivering the October budget.  GBP/USD is holding ground below 1.2450 in the early European session.

USD/JPY remains under modest selling pressure with the JPY underpinned by a fresh leg down in US Treasury yields and expectations of further BoJ rate hikes.

CAD remained fairly unfazed as the BoC delivered a widely expected 25bp rate cut, bringing its policy rate to 3.00%. Traders maintain their near-term bias is still for a move lower in USD/CAD towards 1.42 from around 1.44, due to current over-extended short CAD positioning.

Yesterday, Sweden’s Riksbank cut the policy rate as expected by 25bp to 2.25%. EUR/SEK initially dipped lower but the cross ended the day close to unchanged.

The Chinese yuan remained largely unchanged in both offshore USD/CNH and onshore USD/CNY markets, with thin trading volumes due to the Lunar New Year holiday.

Indonesian rupiah's USD/IDR pair jumped 0.7% to 16,245.5, even as the Bank Indonesia intervened to assure the markets.  Indonesia’s central bank has taken steps to maintain stability in the foreign exchange market by ensuring a balanced supply and demand for foreign currency.  Edi Susianto, head of monetary management at BI, said that the currency's decline was largely influenced by market reactions to the Fed's decision to keep interest rates unchanged, along with gains in U.S. equities. He emphasized that BI remains committed to stabilising the rupiah through necessary interventions in the forex market.