The US jobs markets continues to work against dovish Federal Reserve bets. Yesterday, initial jobless claims dipped again, to 187k. Only once since the pandemic have claims been lower. Continuing claims also came lower than consensus, while housing starts surprised on the upside. Markets remain attached to the prospect of a March cut, now priced with around 50-60% probability, but we really struggle to imagine the Fed cutting in two months’ time against the current economic backdrop.
Despite December’s moderately above-consensus read, US disinflation has been the benign story for markets, so expect some focus on today’s University of Michigan inflation figures, which are expected to be unchanged from last month. Existing home sales for December and TIC flows for November complete the US calendar today. Today is also the last day for any FOMC member to comment on monetary policy before the blackout period, and Austan Goolsbee, Mary Daly and Michael Barr are scheduled to speak.

We think the dollar can consolidate after the recent gains, continuing to draw some benefits from Christopher Waller’s remarks earlier this week, that may have led markets to favour defensive positions heading into the FOMC on 31 January. The only key data release in the US before then is the fourth quarter GDP figures next week, and barring major surprises there, there is no compelling bearish story for the next week or so.

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