GGMA Morning Brief: US Dollar falls sharply on Trump comments / ECB policymaker concerned about euro strength / BoJ members agree on need to continue raising rates / AU inflation beats estimate, lifts rate-hike case / Higher unemployment in the US?/ BOC & Fed meetings in focus
Good morning,
I hope all is well.
Here are the main overnight news and market movers:
Markets: US Dollar falls sharply on Trump comments
The US dollar started to decline yesterday morning, and then the move accelerated after US President Donald Trump indicated he’s comfortable with the dollar’s recent decline, helping send the currency to its lowest level since early 2022. “No, I think it’s great,” Trump told reporters in Iowa on Tuesday when asked if he was worried about the currency’s drop. “I think the value of the dollar — look at the business we’re doing. The dollar’s doing great.” (BBG) USDCHF is down almost down 16% since Trump took office on January 20, 2025.
This morning, the Greenback is consolidating against its major peers and is up slightly. S&P 500 and Nikkei futures are in the green, the Dax is only a little changed. Precious metals keep rallying, and oil and copper are up as well. Bond futures are steady.
Nasdaq futures keep rallying. Maybe this story is the reason: According to Reuters, China has approved its first batch of imports of Nvidia's H200 artificial intelligence chip, three people familiar with the matter told Reuters, marking a shift in position as Beijing seeks to balance its AI needs with spurring domestic development.
According to a senior executive at Meiji Yasuda Life Insurance Co., super-long Japanese government bonds present compelling investment prospects. The company maintains substantial purchasing capacity and is considering actions to increase its holdings of government bonds, as reported by Bloomberg. The primary concern with these investments is the risk that the Bank of Japan may be slow to respond to market developments, leading to unstable inflation and necessitating more frequent interest rate adjustments.
Bond yields are down across the curve this morning:
Austria’s central bank governor says the ECB may need to take action if the euro continues to strengthen
A member of the European Central Bank’s governing council stated that an additional interest rate reduction may be necessary if further appreciation of the euro’s value begins to affect inflation forecasts. Martin Kocher, Governor of the Austrian Central Bank, described the recent appreciation of the single currency against the dollar as “modest,” indicating that it does not currently warrant a monetary policy response. However, he noted in an interview with the Financial Times that should further increases materially lower inflation projections, the ECB could be compelled to take action. Kocher emphasised the importance of maintaining “full optionality” regarding future policy decisions. “If the euro appreciates further and further, at some stage this might create of course a certain necessity to react in terms of monetary policy,” Kocher said. “But not because of the exchange rate itself, but because the exchange rate translates into less inflation, and then this is of course a monetary policy issue.”
European Central Bank Executive Board member Piero Cipollone warned that global turbulence could hit the euro area, according to an interview in El País. “Uncertainty may rise and this could affect the robustness of the recovery, since it would pose a risk to investment,” he told the Spanish paper, according to a transcript on the ECB’s website. “This could have an impact, particularly on growth, and inflation would clearly be affected. If this uncertainty drags on, it will have an impact on the real economy.” (BBG)
European bond yields are slightly lower this morning:
BoJ members agree on need to continue raising rates
Bank of Japan policymakers agreed on the need to keep raising interest rates, with some emphasising the role of a weak yen on underlying inflation and the timing of the next interest rate hike, minutes of their December meeting showed on Wednesday. The remarks highlight the board's readiness to keep pushing borrowing costs higher, even after its December decision to raise the policy rate to a 30-year high of 0.75%. (RTRS – Continue Reading)
USDJPY also fell sharply yesterday but is consolidating this morning. Tonight, we have the all-important Fed rate decision, which could offer further clues about US monetary policy and the direction of the US Dollar.
Japan's Finance Minister has stated that the government will collaborate with the United States on currency measures when deemed necessary, according to Bloomberg. A joint statement issued in September indicated a tacit understanding from the US permitting Japan to intervene in currency markets during periods of significant volatility. Market participants are currently speculating that Japan and the US may have undertaken coordinated actions to support the yen.
Australia monthly inflation beats estimate, lifts rate-hike case
Australia’s core inflation remained elevated last quarter, suggesting price pressures aren’t cooling at the desired pace and providing the Reserve Bank with further evidence that interest rates may need to move higher this year. The closely-watched trimmed mean gauge of consumer prices, which excludes volatile items, rose 0.9% in the fourth quarter from three months earlier, data from the Australian Bureau of Statistics showed Wednesday. The figure matched economists’ forecasts. (BBG – Continue Reading)
AUDUSD rose yesterday amid broader US Dollar weakness. The move accelerated briefly overnight after the CPI release, but AUDUSD has since been off its highs.
Interestingly, Australian bond yields are down quite a bit overnight. Three-year government bond yields declined 3 basis points to 4.28%, even as meeting-dated OIS showed traders boosted bets on a hike on Tuesday to 76%, from 63% before the CPI data, according to Bloomberg.
Is a hawkish RBA already priced in? Bloomberg also notes that Westpac Banking Corp. became the last of the four major lenders to call a rate rise at the RBA’s Feb. 2-3 meeting.
Immigration enforcement reduces U.S. population growth
New Census Bureau estimates show U.S. population growth slowed to 0.5% (1.8 million people) over the past year, reaching 341.8 million. Immigration restrictions led to just 1.3 million net arrivals—half of the previous year's total—after a prior surge during the Biden administration. Five states—Vermont, Hawaii, West Virginia, New Mexico, and California—lost population, up from two the year before. (WSJ)
In theory, this data effectively lowers the ceiling for potential GDP, meaning the job growth needed to keep the unemployment rate stable is lower than in the past. Estimates from the Peterson Institute for International Economics (PIIE) and Brookings also suggest that a reduction in net migration could drag on real GDP growth by 0.2 to 0.3 percentage points annually in 2025 and 2026. In the future, it will be interesting to see how wages and the employment-to-population ratio evolve, even if headline payroll growth slows.
Chart of the Day: US Conference Board labour market differential points to higher unemployment
U.S. consumer confidence slumped to the lowest level in more than 11-1/2 years in January amid mounting anxiety over a sluggish labour market and high prices, which could prompt households to become more cautious about spending. The Conference Board's consumer confidence index plunged 9.7 points to 84.5 this month, the lowest level since May 2014. Economists polled by Reuters had forecast the index at 90.9. The cutoff date for the survey was January 16, well after the capture of Venezuelan President Nicolas Maduro by U.S. forces.
The share of consumers who viewed jobs as being "plentiful" dropped to 23.9%, the lowest since February 2021, from 27.5% last month. Some 20.8% of consumers said jobs were "hard to get," the highest since February 2021, up from 19.1% in December. The survey's so-called labour market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, dropped to 3.1. That was also the lowest since February 2021, and compared to 8.4 last month. (RTRS)
Today’s Macro Roadmap: BOC & Fed meetings in focus
In the US, the FOMC is expected to maintain the federal funds rate at 3.50%-3.75% during its January 28 meeting, signalling "maximum flexibility" rather than committing to immediate future easing, according to Wells Fargo. While the bank’s baseline forecast anticipates two additional 25 basis point cuts in March and June 2026, the risks are increasingly skewed toward later or fewer cuts as economic growth is expected to firm up in the spring due to fiscal support and prior easing. The committee faces a higher hurdle for further rate reductions now that the policy rate is considered to be in the "vicinity of neutral," coupled with inflation that remains modestly elevated (Core PCE estimated at 3.0%) and unemployment holding steady at 4.4%.
Regarding the debate over the Fed chair succession, Nick Timiraos of The Wall Street Journal reports that President Trump is seeking a Federal Reserve chair who will lower interest rates while maintaining credibility with Wall Street and fellow policymakers. The four main contenders are Kevin Warsh, Christopher Waller, Rick Rieder, and Kevin Hassett, each offering their own unique advantages and disadvantages. Trump is concerned that, although these candidates claim to support his views during interviews, they might act independently once appointed.
The Bank of Canada is likely to keep rates unchanged this month, as recent economic growth matches its October MPR projections. Signs of slowing activity late in the year may suggest a dovish outlook, even though markets still see a greater risk of rate hikes than rate cuts. Friday's GDP report may show a slight Q4 contraction, but industry data has recently differed from expenditure figures due to volatility in trade, according to CIBC.
Good luck today!