US
USD is trading firmly against most major currencies, Treasury yields ticked up across the curve, and gold recovered back above $5000/oz. S&P500 futures are largely flat after yesterday’s drop led by the software, financial services and asset management sectors. The decline was sparked by the launch of new AI automation tools from Anthropic that can help automate legal work, marketing and customer support.
In the near-term, USD has room to retrace some of its recent losses because the Fed is in no rush to resume easing and risk cutting rates less than is currently priced in (50bps by year-end). However, a USD bounce would be a sell-the-rally opportunity. The Fed still has more easing in the pipeline while most other major central banks are done cutting or started to raise rates (RBA). USD also faces important structural drags - fading confidence in US trade and security policy, politicization of the Fed, and worsening US fiscal credibility.
Focus today are on the January ADP private payrolls (1:15pm London, 8:15am New York) and January ISM services index (3:00pm London, 10:00am New York). Both data are poised to validate Fed Chair Jay Powell’s comment that tension between employment and inflation has diminished, leaving Fed policy in a good place.
Consensus expects ADP private payrolls at +45k vs. +41k in December. The ISM services index is projected at 53.5 vs. 53.8 in December. Watch the Prices Paid and Employment sub-indexes. In December, Employment was back into expansion territory for the first time since May 2025, and Prices Paid dropped to an eight-month low at 65.1.
Fed Governor Stephen Miran confirmed he has resigned from his job as the chairman of the White House Council of Economic Advisers. The move allows Miran to stay on at the Fed until Kevin Warsh is confirmed by the Senate to succeed Jay Powell as the next Fed chair.
Powell’s term as Fed chair ends May 15 but his term as a member of the Board of Governors runs until January 31, 2028. If Powell resigns from the Board when his chair term ends, it would create a governor vacancy, which could potentially be filled by Miran. Fed Governor Lisa Cook speaks on monetary policy and the economic outlook later today (11:30pm London, 6:30pm New York).
EUROZONE
EUR/USD is holding above 1.1800. The Eurozone preliminary January CPI is indicative of easing inflation pressures. In line with consensus, headline CPI dropped 0.3pts to 1.7 y/y, the lowest since April 2021, owing to energy base effects. Core CPI (excluding energy, food, alcohol and tobacco) dipped 0.1pts to 2.2% y/y (consensus: 2.3%), the lowest since October 2021, while services CPI declined 0.2pts to 3.2% y/y.
Bottom line: the ECB is well placed to keep rates on hold at 2.00% for some time. The swaps curve price-in steady rates over the next twelve months. We expect EUR/USD to trade closer to 1.1600 in the near term.
NEW ZEALAND
NZD/USD is trading heavy around 0.6000. New Zealand Q4 labor market data showed an improving job market and contained wage pressures. Employment increased more than expected by 0.5% q/q (consensus: 0.3%, RBNZ forecast: 0.2%) vs. 0% in Q3, and private regular wages undershot expectations at 0.4% q/q (consensus & RBNZ forecast: 0.5%) vs. 0.5% in Q3.
The unemployment rate unexpectedly increased 0.1pts to 5.4% (consensus & RBNZ forecast: 5.3%), the highest since Q3 2015. But it was for good reasons as more people entered the labor force. An increase in labor supply can further ease wage pressure.
New Zealand’s swaps curve trimmed slightly odds of 50bps of hikes by year-end. In our view, there is room for the swaps curve to adjust lower against NZD. There’s still significant spare capacity in the New Zealand economy, with the output gap projected to average -1.1% of potential GDP over 2026 vs. -1.6% in 2025.
POLAND
National Bank of Poland (NBP) policy decision is today. NBP is expected to leave the policy rate at 4.00% for a second straight meeting. However, it’s a close call as 13 of the 32 analysts polled by Bloomberg see a 25bps rate cut to 3.75%. We think NBP is in good position to pause and see how the economy responds to the 175bps of cuts delivered since May 2025. Inflation is close to the bank’s 2.5% target and 2025 real GDP growth was 3.6%, exceeding the bank’s 3.4% projection. The swaps curve price in a total of 50bps of cuts in the next six months and the policy rate to bottom at 3.50%.
