North American Summary and Highlights 29 January
Overview - The USD advanced in Europe but corrected in North America after trade and inventory data hinted at downside risk to Q4 GDP. The FOMC left rates unchanged as expected. The USD initially bounced on the statement, but the move was largely reversed during Powell’s press conference.
North American session
The USD weakened after a sharply wider advance goods trade deficit in December, coupled with declines in retail and wholesale inventories, raised downside risk for the forthcoming Q4 GDP release. USD/JPY saw a brief dip below 155 while EUR/USD moved above 1.04. USD/CAD however was little changed near 1.4450 after the BoC eased by 25bps as expected, announced the ending of QT and dropped forward guidance given uncertainty over tariffs. A dip to 1.4410 came after Commerce Secretary nominee Lutnick said Canada and Mexico could avoid tariffs if they acted on migrants and drugs.
The FOMC left rates unchanged as expected. The USD initially bounced, USD/JPY to 155.50 and EUR/USD falling back below 1.04, as the statement dropped a reference to making progress on inflation. However, when asked about this at the press conference Chairman Powell downplayed this change, stating he still expected progress on inflation. The USD then returned to near where it was before the decision.
European morning session
The USD was generally firmer against the riskier currencies through the European morning. EUR/USD fell 40 pips to 1.04, and GBP/USD and AUD/USD kept pace. USD/JPY was only around 20 pips firmer at 155.40, and EUR/CHF dropped 10 pips to 0.9425. EUR/SEK was a couple of figures lower and EUR/NOK a couple of figures higher.
The Riksbank meeting delivered the expected 25bp rate cuts, following Swedish Q4 GDP data which had been marginally lower than expected at 0.2% q/q, though still reasonably solid. EUR/SEK was initially not much changed but NOK/SEK edged lower after the meeting.
Otherwise, there was some generally reasonably strong Eurozone data, with stronger than expected Spanish Q4 GDP at 0.8% q/q in Q4, and better than expected Italian business and consumer confidence. But the German consumer climate index was a little weaker than expected, and Eurozone money supply data was mixed, with lower than expected M3 growth at 3.5% y/y but slightly stronger than expected household loans, rising 1.1% y/y.