There's a lot more the Fed can do

Jens Nærvig Pedersen Danske Bank A/S

Market movers today

In Norway, GDP-figures for May will be published this morning. Besides the strong recovery in private consumption, the significant drop in unemployment during May points to a solid pick-up in growth. At this point, we should see some improvement in productivity growth as well. As a result, we expect mainland GDP to rise 4.5% m/m in May, which is marginally above consensus.

EIA's weekly oil inventory report due today is set to shed light on the latest developments in the US oil market. Yesterday, API reported that crude stock rose 2mb last week.

Selected market news

Fed vice-chair Richard Clarida on Tuesday said: "We have a lot of accommodation in place. There is more that we can do. There is more that we will do if we need to". Cleveland Fed president Loretta Mester said: "If we don't get further fiscal support, things won't come back as well as they could".

EU and UK Brexit negotiators held informal talks on Tuesday. UK Prime Minister Boris Johnson warned Germany's Prime Minister Angela Merkel that the UK is ready to continue without a trade deal if the EU does not compromise, while the UK remains committed to working hard to find an agreement.

Advisors to the US Secretary of State Michael Pompeo are said to have aired the idea of undermining the HKD peg in order to push back on China's recent moves to limit Hong Kong's political freedom. One way would be to limit the availability of Hong Kong banks to buy USD. HKD spot and FX forwards did not move on the news.

Latest COVID-19 related news includes Brazil President Jair Bolsanaro testing positive for COVID-19. He said yesterday that he feels perfectly well. The US has given the WHO a one-year notice before it is set to leave on 6 July 2021.

The rally in risky assets took a pause yesterday and it extended to the Asian session overnight. It further halted the past week's downward trend in broad USD, which took EUR/USD back below 1.13 level. Industrial metal prices are continuing higher unscathed, though. In particular, the price of copper has rallied sharply close to USD6,200/MT.

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Jens Nærvig Pedersen

Danske Bank A/S

EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates

Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold: Volatility persists in commodity space

After losing more than 8% to end the previous week, Gold remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000. The US economic calendar will feature Nonfarm Payrolls and Consumer Price Index data for January, which could influence the market pricing of the Federal Reserve’s policy outlook and impact Gold’s performance.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

US NFP and CPI data awaited after Warsh’s nomination as Fed chief. Yen traders lock gaze on Sunday’s snap election. UK and Eurozone Q4 GDP data also on the agenda. China CPI and PPI could reveal more weakness in domestic demand.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.