N America Summary and Highlights 19 Feb

North America Summary

North American trading was subdued with the U.S. on holiday.  Additionally, a lack of major news, plus also less aggressive rate cuts expectations for 2024, leaves FX traders want to see a clearer trend in data and policy guidance to increase FX volatility. 

Some focus remains on the JPY after the softer profile last week and Japanese GDP data showing a technical recession.  So far this has pushed the market to think about a June rather than April hike in the key policy rate, but some traders are questioning whether this could cause the BOJ to abandon rate hike plans and led to further JPY weakness. 

European Summary

European FX trading was subdued, with the U.S. on holiday and the market searching for direction.  Though the reduction in U.S. interest rate expectations continues to underpin the USD, FX traders are wary that this narrative is now getting mature and the Fed will likely cut three times given the inflation slowdown.  This produces a bias towards a firmer USD, but a reluctance this week to test the upside. 

Elsewhere, GBP remains in focus with the market taking the view that the UK will likely cut less than the ECB, given higher core and wage inflation.  This is producing a view that the market could drift down to test 0.8500 on EURGBP if the BOE testimonies this week temper remaining rate cut talk.