Markets:
- USD leads, GBP retreats
- WTI crude oil was up $1.39 to $73.11
- US 10-year yield down 1.6 bps to 4.56%
- Gold up $34 to $2658
- S&P 500 down 0.2%.
The US dollar was a strong performer to start the new year, it turned out, I think it was more about the movements in capital flows than it was about economic data though. Initial jobless claims were lower than expected, which is a good sign for the US jobs market, but it is a holiday week. Figures on construction spending and the latest PMI were both slightly on the soft side. Again, I don't think that's what was driving the market movement. The main reason for the movement in the US dollar today, and it was a broad, strong movement in the US dollar today, was capital flows.
Engineers are studying the picture from 2024 and into 2025 and all the winners were named by USD as the Mag7 and AI trades.
Surprisingly, commodity currencies held up well despite a rough start in Chinese markets, suggesting that capital flows were the main driver. That said, strong oil and gold also proved that there are hopes for global growth even without China's help.
The USD/JPY pair was somewhat reluctant to push higher, even with Treasury yields starting lower and then bouncing, possibly due to concerns about a potential intervention or raising standards by the Japanese authorities. It was a 2024 trade, and we'll see if it holds up this year.
The biggest losers were the euro and the pound, which both fell around 1%. The pound was hit particularly hard as stops below the December low of 1.2475 passed and the pair fell another 100 pips from there with little bounce. The same thing happened in the euro later as it fell all the way to 1.0226 before a 40 pip bounce.
Those two will be under the microscope early in the year but the rush out of Europe and into the US shows how much the market is set.
