The tech selloff appears to be offering the dollar some support, suggesting that a degree of safe‑haven value has been restored. The is currently cheap against most G10 currencies; however, medium‑term bearish sentiment may still encourage selling into rallies. Today’s should be in line with consensus, in our view
USD: Slightly Bid
Today’s US report is likely to have a smaller market impact than Wednesday’s . The Federal Reserve has been signalling little urgency to cut again, and it’s mostly the jobs market that can move the needle.
Incidentally, we don’t expect surprises in January’s inflation. We are aligned with consensus on a 0.3% month-on-month/2.5% year-on-year print for both headline and . That should endorse the latest hawkish repricing in , which has brought the dollar further into short-term undervaluation.
That undervaluation argues – in our view – that the balance of risks is tilted to the upside in the coming days for the greenback. However, the price action of this week strongly suggests an inclination to sell the USD rallies, and we struggle to see the dollar recover substantially from here.
One slightly encouraging development for the dollar is the seemingly positive reaction to the latest round of US tech selloff, and an indication that some safe-haven value has been restored.
EUR: Lack of ECB Dissent to Keep Rate Expectations Flat
The eurozone calendar includes the second print of fourth-quarter , which is expected to be confirmed at 0.3% quarter-on-quarter. Market impact should be null anyway.
On the ECB side, we’ll hear from Vice President Luis de Guindos. The latest comments by other members have gone under the radar, with no clear dissenting opinions to the dominating neutral stance. Incidentally, there have been very few follow-up comments on the euro’s strength after the meeting. Overall, very few reasons to revise rate expectations, and this should remain the case for some time.
The short-term fair value of has dropped to 1.165 after the latest hawkish repricing in the USD curve, meaning the overvaluation gap has now widened too. In line with our USD view above, we are reluctant to see that gap being filled entirely, even if some downside risks for the pair remain.
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