[MARKET ANALYSIS] USD firmer, NZD hit post-RBNZ whilst the GBP holds afloat following UK inflation

• G10s are mostly lower across the board; GBP remains afloat following above-expected Core and Services metrics, whilst the NZD is the clear laggard in the aftermath of the RBNZ’s decision to keep rates steady (as expected), but held a dovish skew.
• DXY is mildly firmer this morning, and currently trades at the upper end of a 97.11-97.32 range, holding just above its 21 DMA at 92.20. Further upside could see a test of the prior day’s high at 97.54. Really not much driving things for the index this morning, but could face some volatility on, a) geopols, b) US data, c) FOMC Minutes. On the former, focus will be on the US-Russia-Ukraine talks in Geneva – little newsflow thus far. On data, US durable goods orders are seen slipping again in December; housing starts are expected to rise in December, while building permits are expected to ease. US industrial production is expected to rise in January. And, finally, the FOMC Minutes for the last meeting, where the Bank left rates unchanged at 3.50-3.75%, as expected, in a 10-2 vote, with Governors Miran and Waller dissenting in favour of a 25bps reduction.
• GBP remains resilient vs the USD strength this morning, following the region’s inflation report, with particular focus on the hotter-than-expected Services and Core metrics. In more detail, the headline printed in line with the market consensus at 3.0% Y/Y, and as such, slightly hotter than the BoE's 2.9% forecast for the period. The headline was also accompanied by a hotter-than-expected core and services figure. M/M metrics were broadly as expected, unwinding the December base effects. Taking a look at food inflation, it fell to 3.6% (prev. 4.5%); ING suggests that hawks can become “a little more relaxed about the upside risks to inflation”. ING sticks with its call for a March cut and then another by June. Market pricing shifted a little dovishly, with the probability of a March cut now seen at 95% vs 84% pre-release. Cable initially knee jerked lower, and then immediately reversed that move to print a session peak at 1.3577; the upside then gradually petered out, to now trade within a 1.3549-1.3577 range.
• NZD is the clear underperformer this morning, following the RBNZ’s decision to keep rates steady (as expected), though the accompanying commentary held a dovish skew. In brief, the Bank stated that the committee will continue to assess incoming data carefully and if the economy evolves as expected, monetary policy is likely to remain accommodative for some time. Furthermore, it stated that inflation is most likely returning to within the committee's 1–3% target band in the current quarter and that, conditional on the central economic outlook, the OCR is projected to remain around its current level in the near term before increasing from late 2026. NZD/USD currently trades around the 0.60 mark (coincides with its 21 DMA), within a 0.5989-0.6053 range.
• EUR is currently moving at the whim of the Dollar. Overnight, the FT reported that ECB President Lagarde is expected to leave the Bank, before her eight-year term ends in October 2027. However, she later clarified that she remains committed to her role and has not made a decision on her departure. Little follow through to the single currency on these reports. Elsewhere, the JPY is pressured by the USD strength. Focus has been on the start of Japan’s trade deal with the US, where the pair unveiled a USD 36bln oil, gas and critical minerals project; USD 33bln will be invested in Ohio. A thing to closely watch is how much of the investment will be utilise Japan’s FX reserves or through USD purchases itself.

The USD is exhibiting strength this morning, bolstered by a resilient GBP following stronger-than-expected UK inflation metrics, while the NZD underperforms post-RBNZ's dovish guidance. The mixed performance across the G10 underscores the USD's position amid anticipated volatility from upcoming US data and geopolitical developments. As the GBP reacts positively to inflation data, the NZD remains pressured by the RBNZ's assurances of a prolonged accommodative stance, highlighting variances in monetary policy outlooks among G10 currencies.