Euro makes gains

The euro has gained some ground against the dollar getting back up to $1.0875; the single currency had lost out early yesterday and nearly broke down through $1.08 but recovered, taking back more than the 1/2 cent it had lost. It fared well against sterling rising back above 88p. The euro’s gains come ahead of the Fed decision today and the ECB on Thursday with both expected to hike, but the ECB is forecast to go for 50bps compared to 25bps by the FOMC

Bond markets were relatively quiet with US Government bond 10-year yields largely unchanged at circa 3.50% while equivalent German yields ticked down a little to just under 2.3%

Euro-area GDP rose 0.1% quarter-on-quarter in Q4, ahead of expectations of a small contraction. The annual rate came in 1.9%, down from 2.3% in Q3, but again higher than forecast. The German and Italian economies shrank in the quarter while France and Spain recorded increases. The outsize expansion of the Irish economy (+3.5% Q-on-Q, helped by multinational activity) supported growth in the zone and despite the Irish economy’s small size probably contributed the crucial 0.1 percentage point to take all of the Euro Area into positive territory

Updated IMF forecasts saw the agency revise up global growth projections for this year by 0.2% to 2.9% (growth in 2022 is estimated at 3.4%), while growth next year is revised down a touch to 3.1%. The report cites the balance of risks still being tilted to the downside, but that those risks have moderated somewhat in the past few months. This has resulted in most advanced nations seeing upward revisions to their growth projections for 2023 although the UK is the exception with IMF revising down its outlook for that country sharply and now sees a 0.6% contraction this year

The Fed FOMC meeting concludes today with another rate rise on the cards. The last summary of economic projections in December envisaged subdued growth, rising unemployment and declining inflation in the US this year. However, it also indicated that interest rates had a little further to rise but were close to topping out. With this in mind, the market expects the Fed to slow the pace of increase to 25bps (from 50bps increase in December and 75bps at the previous four meetings) taking the Fed funds rate to a range of 4.5% to 4.75%

Economic data due today includes manufacturing PMIs and Euro Area January flash inflation. In the US, we get the Fed decision late on this evening