Today’s data serves as a minor distraction from tomorrow’s FOMC policy meeting
Markets
Just the idea of a potential coordinated JPY intervention by the US and Japan sufficed for yen bears to back off. For now, we have to add, because we wouldn’t be surprised if the market will at some point test authorities’ resolve to actually step in. USD/JPY’s two-day slide ended at 154.18 yesterday after having traded as low as 153.31, below the 100 dMA. The currency pair is slightly recovering to 154.53 this morning as the dust is settling. The stronger JPY was much less visible in EUR/JPY: 183.17 compared to the 184.06 record high on Friday. Broader dollar weakness with spillovers from USD/JPY were visible elsewhere: in new record highs for the likes of gold, silver & platinum as well as in other FX pairs. EUR/USD which for the first time since September attempted to take out 1.19. That failed but the eventual 1.1880 closing level was the highest in more than four years nevertheless. GBP/USD rose to 1.368 compared to 1.34 mid last week. The trade-weighted dollar index kept the 97 barrier, a five-month low, afloat. Stocks struggled for direction in Europe while eking out some small gains in the US. Core bonds grabbed some kneejerk haven flows with Bunds outperforming Treasuries. Bund yields fell 2.6-3.9 bps in a bull flattener. US rates eased between 0.4 (2-yr) and 2.6 bps (20-yr). Gas prices grabbed some headlines too by shooting higher to a seven month high (storm Chandra) before paring gains again.
It’s unlikely we’ve seen the last in the JPY sage but for the time being it may move a bit to the background. We’ll have to see how market dynamics play out, for the US dollar in particular, with the economic calendar now slowly heating up in the US. The weekly ADP job creation numbers and Conference Board consumer confidence is up for release, along with some (second-tier) housing data and Richmond business confidence. They serve as a minor distraction from tomorrow’s FOMC policy meeting. The latter is at risk of being its thunder stolen by US President Trump announcing the new Fed chair shortly beforehand. European news centers around the free trade deal struck between the EU and India after nearly two decades of negotiations. The “mother of all deals”, dixit EC president von der Leyen, follows the Mercosur deal (still subject to EU Parliamentary approval) and cannot be decoupled from the changing global order and the move towards diversification – in this case away from the US and China - is central. Trump’s renewed tariff threat vs South Korea (see below), real or not is irrelevant, serves as case in point.
News and views
US President Trump threatened to raise South Korean tariffs on all goods covered by reciprocal tariffs along with cars, lumber and pharmaceutical goods from 15% to 25%. He blames the Asian country for slowplaying the trade deal both nations reached last year. Part of that deal included annual South Korean investments in the US. A bill to set up a $350bn investment fund is currently stalled in South Korean parliament. Concerns over the currency impact are one of the reasons for the delay given that KRW is trading near lowest levels against USD since 2009. The South Korean National Assembly so far also didn’t ratify both countries’ over trade agreement which is more of a Memorandum of Understanding and factsheet rather than a formal treaty. The Kospi initially shed 1.5% on the news, but managed to turn those early losses into 2.5% (!) gains. An all-time high for SK Hynix (+8%) on reports that the company is the sole supplier of advanced memory for Microsoft’s new AI chip helped enabling the turnaround.
UK shop price inflation rose by a strong 0.4% M/M in January, lifting annual growth from 0.7% to 1.5%, the fastest pace since February 2024. Details showed non-food prices rising by 0.1% M/M and 0.3% Y/Y (from -0.6%), while food price inflation accelerated by 1.1% M/M to 3.9% Y/Y (from 3.3%). The British Retail Consortium said that shop price inflation jumped due to high business energy costs and the hike to national insurance continuing to feed through to prices. Meat, fish and fruit were particularly affected, also reflecting weak supply and stronger demand, while non-food categories, including furniture, flooring, and health and beauty, all saw inflation rise.
Author
KBC Market Research Desk
KBC Bank
