USD Pause, Ethereum non-Stop, cutting cycle in doubt

USD take a breather after weaker than expected US non-farm payrolls, dropping back towards the neckline support after a 4-day winning run. Ethereum, however, continues to rally, hitting new highs at $1764. GBP is the weakest of the day, after rallying across the board on Thursday as the BoE underscored the ongoing turn in central bank policy away from easing. Below is the chart showing USDX moving in tandem with real US yields against XAUUSD

Remember Jobs Data?

Once again, US NFP diverged with largely positive survey jobs data as payrolls rose 49k, 3x less than consensus expectations, while the prev 2 mths were revised down by 159k. The unemployment rate fell to 6.3%.

BoE off the Table …again

With upbeat forecasts and a unanimous vote, the Bank of England signaled that negative rates are othe ff the table. Instead, the focus will now be on how quickly Bailey begins the taper and how long it will be before rates rise.

The QE program was kept at 895B pounds with the current 4.4B/week pace maintained until St Patrick’s Day. It’s likely to be trimmed by around 1b/week from there, baring any kind of surprise.

The market was caught off-guard by the level of confidence in the central bank despite the latest lockdown measures. Sterling jumped and as the only currency to hold off the ongoing rally in the US dollar (see yesterday’s note).

The BOE is another example of central banks signaling (though not explicitly) that the easing cycle is over. The pandemic has been highly uncertain but after the first wave, consumers, businesses and governments have been able to better muddle along. Though some places may see negative GDP in Q1, optimism about the post-vaccine economy is building.

As is tradition, the end of the easing cycle means a quick pivot in markets to a focus on when the hiking cycle will begin. Despite the Fed’s insistence that it will let inflation run hot, the market is focused on the US, because growth has held up much better there. Rates are ticking higher and the US dollar gained for seven straight days against the yen.