[MARKET ANALYSIS] G10s mostly firmer vs USD, ex-AUD which appears to be taking a slight breather

• G10s are mostly firmer against the USD. Kiwi leads, followed by the GBP, whilst the Aussie lags a touch; the latter seemingly paring back recent strength.
• DXY is incrementally lower today. As a reminder, the index was choppy in the prior session following a strong NFP report and as markets continue to digest reports that President Trump is looking exit the North American trade pact. Currently, the index resides towards the lower end of a 96.77-97.07 range, and further pressure could see a test of the prior day’s low at 96.49. Focus today will be on the US Jobless Claims, and then an appearance from the POTUS.
• GBP is slightly firmer this morning, largely attributed to the slight USD weakness. Earlier, a mixed GDP report spurred two-way action in Cable; in brief, December’s M/M figure printed in-line with expectations, whilst the Y/Y component and Q4 prelims metrics came in softer than expected. GBP/USD fell from 1.3617 to 1.3607 before paring, and then strengthening as the morning progressed. ING opines that, given recent seasonality-related factors, it expects the economy to “bounce back” a bit in Q1. On monetary policy, the bank believes that if recent growth and labour market weakness persist alongside falling wage growth, then a March cut is “highly likely”. As it stands, Cable currently sits at the upper end of a 1.3604-1.3654 range.
• JPY is currently moving at the whim of the USD, with USD/JPY towards the midpoint of a 152.26-153.54 range. Further pressure in the pair could see a test of the lows seen in late January, when Jiji reported that Japan asked the US to conduct USD/JPY rate checks. In terms of the environment for JPY, markets are continuing to increase bets of faster BoJ normalisation. Mizuho’s Koshimizu, speaking to Reuters, highlighted that improved growth prospects, clearer policy strategy and inflation continuing to remain above the BoJ’s target, may allow the Bank to deliver three rate hikes this year – suggesting that a hike could come as early as March or April. Markets currently price in a 60% chance of a hike in March, 92% chance in June and fully priced in for July.

The G10 currencies are generally strengthening against the USD, led by the Kiwi and GBP, while the AUD is pulling back slightly. This USD weakness follows a choppy session and highlights ongoing market reactions to mixed economic data and looming geopolitical developments concerning trade. The focus on upcoming US Jobless Claims and potential monetary policy shifts, particularly from the BoJ regarding rate hikes, could further influence currency movements in the near term.