ECB Holds, US Growth Soars: Dollar Volatile Ride

The ECB maintained its rates, and the strong US growth report caused the dollar to experience a rollercoaster ride in global markets.

In a widely anticipated move, the European Central Bank (ECB) decided to keep its primary refinancing rates steady at 4.5% for the third consecutive meeting, signaling a commitment to maintain restrictive interest rates to combat inflation. Despite concerns about a potential recession and easing inflationary pressures, ECB President Christine Lagarde, in a press conference, emphasized the need to sustain these levels until inflation returns to the target of 2%.

Lagarde dismissed talks of interest rate cuts, citing persistent underlying price pressures in the Eurozone and uncertainties arising from geopolitical tensions. The Euro reacted sharply to the announcement, dropping to 1.0830, a 0.6% decrease over the period, equivalent to 60 pips.

Across the Atlantic, the United States reported robust economic growth in the fourth quarter of 2023, with the GDP estimate surpassing forecasts at 3.3% YoY. However, concerns arose as unemployment claims printed higher than the estimated 214k, indicating potential softness in the labor market. The Dollar Index (DXY) reached an overnight high of 103.68 before a slight pullback.

Asia Session Developments

In the Asian markets, Tokyo’s Core Consumer Price Index (CPI) fell to 1.6% YoY in January, its lowest since March 2022. This exceeded the estimated 1.9%, highlighting a slowdown in inflationary pressures. The Dollar Index (DXY) remained in focus as the session unfolded.

Key Events and Expectations

PCE Price Index (1:30 pm GMT)

The PCE Price Index, the Federal Reserve’s preferred inflation gauge, is anticipated to show a further easing from 3.2% YoY to 3.0% YoY in core PCE reading for January. A potential weakening of inflationary pressures might lead to a softer dollar during the US session.

ECB Holds, US Growth Soars: Dollar Volatile Ride

Central Bank Notes

• The Federal Funds Rate target range remains unchanged at 5.25% to 5.50%.
• The Federal Reserve aims for maximum employment and a 2.0% inflation rate over the long run.
• The next Federal Reserve meeting will be January 30-31, 2024.

Market Biases for the Next 24 Hours

• Gold (XAU): Weak Bearish
• Australian Dollar (AUD): Weak Bearish
• New Zealand Dollar (NZD): Medium Bearish
• Japanese Yen (JPY): Weak Bullish
• Euro (EUR): Medium Bearish
• Swiss Franc (CHF): Weak Bullish
• British Pound (GBP): Weak Bullish
• Canadian Dollar (CAD): Weak Bullish
• Oil: Medium Bullish

Central Bank Notes and Next Meetings

• RBA (AUD): The cash rate target remains unchanged at 4.35%. The next meeting is on February 6, 2024.
• Bank of Japan (JPY): Maintains Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control—next meeting on March 19, 2024.
• ECB (EUR): Key interest rates remain unchanged—the next meeting will be on March 7, 2024.
• SNB (CHF): Policy rate unchanged at 1.75%. The next meeting is on March 21, 2024.
• Bank of England (GBP): The official bank rate is 5.25%. The next meeting will be on February 1, 2024.
• Bank of Canada (CAD): Overnight rate at 5.0%. The next meeting is on April 10, 2024.

Oil Market Highlights

Crude oil prices surged as the US reported stronger-than-expected economic growth and geopolitical tensions disrupted global shipping in the Red Sea. WTI oil gained 2.7%, reaching $77.40 per barrel, poised for a second consecutive week of gains.

Investors should remain vigilant as global financial markets navigate economic uncertainties and central bank policies in the coming sessions.

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