Wall Street closes at a record for the first time since end of January
Good morning,
With US markets closed for Presidents’ Day, trading volumes remained subdued yesterday. Per the US Dollar Index, the greenback posted moderate losses, while Spot Gold dipped back below the widely watched US$5,000 barrier. Bitcoin also pared back a portion of Friday’s upside on Monday.
UK Jobs Data Expected to Show Continued Loosening
Today, the UK December jobs report is released at 7:00 am GMT. As I mentioned in the week-ahead post, this release and tomorrow’s UK CPI inflation print will be watched closely. Ahead of these data, money markets are pricing in just shy of two BoE rate cuts this year. Quite frankly, I feel investors may be underestimating the likelihood of further easing.
The case for dovish policy remains compelling. The BoE projects inflation will reach its 2.0% target in H1 2026, while unemployment is forecast to rise to 5.3%. Meanwhile, Q4 25 GDP growth registered just 0.1% according to data released last week, matching the prior quarter and falling short of the 0.2% consensus.
As shown in the LSEG calendar below, unemployment is expected to tick higher to 5.2% from 5.1%. I do want to note that although 5.2% is the median estimate, it remains a close call according to LSEG’s forecast distribution.
Private payrolls data, along with average earnings growth, will be key to monitor. Ultimately, in order for markets to fully price in a March cut – currently around a 65% probability that the BoE will lower the bank rate by 25 bps next month to 3.50% from 3.75% – investors will want to see these data come in soft today, which will naturally weigh on the GBP. As such, I am watching the GBP/NZD, GBP/AUD, and GBP/JPY pairs solely on the back of diverging policy trajectories.
Canadian CPI Inflation to Test Overextended CAD?
Another release on the docket today is the January Canadian CPI inflation data at 1:30 pm – the first of two inflation reports before the BoC’s 18 March meeting.
While this release is unlikely to shift policy expectations – the BoC has made it clear that it will remain on hold for the foreseeable future and markets are pricing in as such – I believe the report merits attention given the CAD’s stretched positioning.
Per the LSEG calendar below, expectations for the YY headline number are for January’s print to remain unchanged at 2.4%. However, as I am sure you are aware, what the BoC focusses on most is the CPI median (forecast to remain at 2.5%) and CPI trim (anticipated to ease to 2.6% from 2.7% in December), with both measures sitting within the BoC’s inflation target band of 1-3%.
If the CPI median and trim measures surprise to the downside, reaching or exceeding the minimum estimates (2.4% and 2.6%, respectively), this could trigger unwinding of long CAD positions and create a short-term scalping opportunity. For pairs to trade, USD/CAD could present a long opportunity, given that the USD is overstretched to the downside.