Market Drivers – US Session – 3 February

Commodity-linked currencies were little changed against the greenback. AUD/USD is unchanged at around 0.7130, while USD/CAD hovers around 1.2670.

The USD/JPY nears 115.00 at the end of the American session, as government bond yields edged higher. The yield on the 10-year Treasury note is currently at 1.82%.

Gold trimmed intraday losses and finished the day at around $1,805.00 a troy ounce. Crude oil prices rallied in the American afternoon, with WTI ending the day at $90 a barrel.

Economic Data
The ISM for the service sector fell 2.4 points to 59.9 in January. The decline was not quite as bad as feared by the consensus and is still at a level of expansion that is consistent with a steady pace of growth for the service sector. That said, throughout the comments and within the various sub-components, there was a theme that just about everything is still in short supply and that is slowing production despite a robust demand environment.

Other Developments
European currencies soared after central banks’ decisions, putting pressure on the US dollar. The Bank of England hiked its policy rate by 25 basis points to 0.5% as expected, as all voting members aligned to hike, although 4 out of the 9 participants voted for a 0.50% hike.

At the same time, MPC members voted unanimously to reduce government bond purchases. The central bank is now expecting inflation to peak at around 7% in April but then fall to 2.15% in a two-year period. GBP/USD hit 1.3627, now hovering around the 1.3600 level.

The European Central Bank left rates and maintained its guidance on interest rates and financial support. There was a modest twist in the wording of the statement, as policymakers removed the words “in either direction” in the paragraph related to being open to adjusting monetary policy as needed.

Cabinet Ministers believe there is a 50/50 chance that Boris Johnson will be forced out of office after four of his most senior aides quit 10 Downing Street and his Chancellor publicly rebuked him,” said the Times while conveying political hardships for UK’s Johnson during early Friday morning in Asia.

The EUR/USD pair rallied on comments from President Lagarde, as she did not rule out a rate hike this year, quite a hawkish shift from her December statement. Even further, she made it clear that policymakers are concerned about inflation, although she repeated that rate hikes would continue to depend on the three criteria of their forward guidance.

Finally, Lagarde added that “Compared with our expectations in December, risks to the inflation outlook are tilted to the upside, particularly in the near term.” EUR/USD peaked at 1.1451 and currently trades in the 1.1430 price zone.

Bitcoin ‘s price late Thursday was roughly flat after dipping in earlier in the day, while spot trading volume remained muted. After a more than 4% drop on Wednesday, bitcoin’s selling pressure was mostly gone during US trading hours on Thursday despite the continued price plunge of Meta Platforms’ shares following the former Facebook’s disappointing earnings results and outlook.

On Friday, the focus will be on the US Nonfarm Payrolls report. The country is expected to have added 150K new jobs in January, while the unemployment rate is foreseen steady at 3.9%. Traders are also eying key Canadian labour data on Friday.

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