Main currency pairs still range-bound

Producer prices data in the US on Friday came in softer than expected but reaction was muted with the main currencies remaining range-bound and a quiet day ahead is expected due to the US holiday. The dollar is little changed since last week, trading against the euro and sterling at around $1.0960 and $1.2750 respectively, while EURGBP is trading just below £0.86.

US produce prices numbers were lower than forecast at -0.1% m/m and 1.0% y/y, (consensus: 0.2% m/m and 1.4% y/y). The November outturn was revised down to -0.1% m/m from unchanged, meaning headline producer prices dropped for the third consecutive month in December. This has helped bolster market pricing for a first Fed rate cut of 25bps in March.

In an interview published over the weekend, regarding the potential timing for rate cuts in the Euro Area, the ECB’s chief economist Philip Lane stated that “the December (inflation) numbers broadly confirm our assessment from the December meeting” and that crucial wage data would only be available by the ECB’s June meeting, while stressing that “cutting rates too fast could fuel a new wave of inflation”.

It’s a busy week ahead on the economic data front with UK releases including unemployment rate on Tuesday, CPI on Wednesday and Retail Sales on Friday. On Wednesday we will have Retail Sales in the US, while in the Euro area we will see the final print CPI print for December. ECB President Lagarde will also be speaking on Friday afternoon.