UK 30-Year Yield Climbs to Highest Since 1998 Ahead of Debt Sale

Bond

Summary:

The UK’s long-term borrowing costs surged to the highest level since 1998 as traders dumped debt ahead of a near record

The UK’s long-term borrowing costs surged to the highest level since 1998 as traders dumped debt ahead of a near record flood of bond sales this year.

The yield on 30-year gilts climbed three basis points to 5.21%, just ahead of a £2.25 billion (US$2.8 billion or RM12.69 billion) auction for notes of the same maturity on Tuesday.

The move ramps up the pressure on Chancellor of the Exchequer Rachel Reeves to keep the market on side ahead of a raft of bond sales. The Labour government’s plans to sell £297 billion of bonds this fiscal year — the second-highest on record — is keeping gilts under pressure, as investors worry about the outlook for the nation’s ballooning debt.

“Following a busy January, the burden of gilt issuance volume is unlikely to ease significantly, if at all, in cash or duration terms, for at least the remainder of the quarter,” Sam Hill, head of market insights at Lloyds Banking Group plc, wrote in a note.

The prospect of fewer interest-rate cuts from the Bank of England than initially expected has also weighed on the notes. Traders are betting the UK central bank will deliver only two quarter-point reductions this year, compared to bets on more than three at the start of last month.

The market moves show the extent to which the government is treading a fine line, as it tries to keep investors on side and dispel the memory of former Conservative Prime Minister Liz Truss’ disastrous mini-budget of 2022. Reeves already received a warning from bond vigilantes in October when yields surged in response to the prospect of bigger debt auctions.

Source: Theedgemarkets

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Alex

Forex

Notably EUR/USD is holding onto the gains made on yesterday's Washington Post report. We consider this a fair adjustment after EUR/USD overshot on the downside last week. And short-term fair value models – based largely on rate spreads – suggest EUR/USD could correct further to 1.05 if there was sufficient reason, ING’s FX analyst Chirs Turner notes.

EUR/USD can get back to 1.0460 and potentially 1.05

“Short EUR/USD has probably been one of the highest conviction FX trades in late 2024. Notably, EUR/USD could not make it back to the 1.0335 starting point when the tariff report first came out.”

“The FX options market suggests investors may be the most worried about an upside correction in EUR/USD since September. We read this from the one-week risk reversal – the price for a EUR/USD call over an equivalent EUR/USD put – which at 0.15% vols is now the highest since late September.”

“Data could drag EUR/USD back to 1.0460 and potentially 1.05 – all within an underlying EUR/USD bear trend.”

Source: FXSTREET

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Cohen

Forex

The Euro is receiving more support on Tuesday and extends its recovery against the US Dollar (USD) for the third day in a row, with expectations that the upcoming inflation numbers for the Eurozone as a whole will remain persistent. The expectations were revised after the preliminary German Harmonized Index of Consumer Prices (HICP) data for December, released on Monday, showed that the monthly headline HIPC inflation jumped by 0.7%, above the 0.5% estimate. On a yearly basis, headline HICP rose by 2.9%, compared to 2.4% in November.

Meanwhile, markets are on edge over the whipsaw reactions and knee-jerk moves over the tariff plans from President-elect Donald Trump's tariff plans. The Washington Post published a piece mentioning that Trump was considering simplifying his tariff schemes by imposing a single universal tariff on critical imports and goods. Hours later, Trump himself came out to refute the rumors and confirm that the schemes and plans would remain in place as earlier announced.

Daily digest market movers: French HICP upbeat confirmed

The French preliminary HICP for December has already been released earlier on Tuesday. The monthly gauge snapped the previous disinflationary print by jumping 0.2%, below the 0.4% expectation and above the -0.1% from November. The yearly gauge came in at 1.8%, which is 0.1% higher than the 1.7% from November. At 10:00 GMT, the preliminary Eurozone HICP for December will be released. The monthly headline HICP has no consensus view, while it was at -0.3% in November. The yearly headline HICP is expected to tick up to 2.4% from 2.2% in the previous month.The monthly core HICP has no forecast and was at -0.6% in November.The yearly core HICP is expected to remain unchanged at 2.7%.For now, the European Central Bank (ECB) is projected to cut its policy rate by 25 basis points on January 30. Italian inflation will also be released at 10:00 GMT. Here, a similar pattern is seen as in Germany, with the preliminary December monthly HICP heading to 0.3% from -0.1%.German Bunds ticked up quite a bit last week and stretched up to 2.47% on Monday. This Tuesday, rates are starting to ease, with the Bund currently trading around 2.44%.European equities are unhappy with the recent development in European inflation numbers and are dipping lower this Tuesday. The fear that inflation will pick up again could mean that the European Central Bank keeps rates steady for longer or considers starting to hike again, which is a setback for equities.

Technical Analysis: EUR/USD above ground at 1.04 with blurry outlook

EUR/USD is in a perfect technical bounce, though where to go next is becoming blurry. The geopolitical developments from Monday have helped the Euro find support at 1.0294 and rally all the way to nearly 1.0448. The question now will be whether the Euro has enough room left to head above 1.0450. This will not be the case if those European bonds start to fade from their Monday high points and need more upside to pull the Euro further up towards 1.05.

The first big level to break is 1.0448, the low of October 3, 2023. Once through that level, the 55-day Simple Moving Average (SMA) at 1.0558 comes into play. Another catalyst will be needed for this kind of move, as it could squeeze the Dollar bulls.

On the downside, ahead of the current two-year low at 1.0224, the 1.0294 level is now acting as the new first line of defence. It was a pivotal point on Monday, offering room for buyers in EUR/USD to get involved and push price action higher. Further down, the round level at 1.02 would mean a fresh two-year low. Breaking below that level would open up the room to head to parity, with 1.0100 as the last man standing before that magical 1.00 level.

Euro Extends Recovery Above 1.04 as Focus Shifts to Eurozone Inflation Data_1

Source：FXStreet

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Warren Takunda

Economic

Germany's inflation figure hit 2.6% in December, its highest level in 11 months and surpassing forecasts of 2.4%. Core inflation edged up to 3.1%. Markets reacted as Bund yields hit 2.45% and the euro gained 1.3%. Equity indices rallied on easing US tariff concerns.

Preliminary prints from the Federal Statistical Office, released on Monday, showed Germany's consumer price index rising by 2.6% year-on-year in December, a sharp increase from 2.2% in November and surpassing economists' forecasts of 2.4%.

This marks the highest annual inflation rate since January 2024.

On a monthly basis, prices climbed 0.4%, reversing November's 0.2% decline and beating predictions for a 0.3% rise.

When food and energy are excluded, core inflation inched higher to 3.1% from 3% in November, highlighting persistent underlying price pressures.

Looking at the harmonised index of consumer prices, used for cross-country comparisons in the eurozone, inflation surged to 2.9% year-on-year, again marking an 11-month high and well above the 2.6% forecast.

Month-on-month, the HICP advanced by 0.7%, its strongest gain since March 2023, outpacing the 0.5% consensus estimate.

Breaking down the data, prices accelerated in several key categories. Service costs rose 4.1% year-on-year in December, compared with 4% in November, while food prices climbed to 2%, up from 1.8%.

Energy prices, which had been a key driver of disinflation in recent months, fell at a slower pace of -1.7%, compared with -3.7% in November.

Germany's inflation figures precede Tuesday's release of eurozone-wide data, which is expected to show a rise in annual inflation to 2.4% in December from 2.2% in November.

Core inflation across the bloc is projected to remain stable at 2.7%, underscoring the ECB's challenge in meeting its 2% target.

Market reactions

The inflation surprise sent ripples through financial markets, particularly in bond and currency trading.

German government bond yields climbed, with the benchmark 10-year Bund yield rising to 2.45%, the highest since early November, and the two-year Schatz yield advancing by 3 basis points to 2.20%.

Investors interpreted the inflation data as reducing the likelihood of aggressive ECB rate cuts in the near term.

In foreign exchange markets, the euro strengthened by 1.3%, trading above $1.04.

The single currency gained momentum following a Washington Post report suggesting that the Trump administration is considering a softened version of its universal tariff plan.

According to unnamed sources cited by the Post, the administration's economic team is deliberating tariffs targeting specific sectors, driven by economic conditions and national security concerns, while avoiding blanket increases on all US imports.

European equity markets also reacted positively, with major indices posting solid gains on Monday. The Euro Stoxx 50 index surged by 1.6%.

In France, the CAC 40 rose 1.5%, driven by luxury and industrial stocks. Shares of Hermès, LVMH, and Kering climbed approximately 3.7%, buoyed by expectations of fewer trade disruptions.

Italy's FTSE MIB gained 1.2%, led by a 5% jump in Stellantis, as car makers rallied amid hopes for more measured US tariff policies.

Germany's DAX index added 0.9%, with automotive stocks leading the way.

Shares of Porsche AG and Daimler Truck Holding AG soared over 6%, while BMW, Mercedes-Benz AG, and Volkswagen rose 5.6%, 4.4%, and 4%, respectively.

Source: Euronews

To stay updated on all economic events of today, please check out our Economic calendar

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Justin

Economic

Forex

The AUD/USD pair regains positive traction following the previous day's pullback from the 0.6300 mark, or over a two-week top and builds on its steady intraday ascent through the first half of the European session on Tuesday. Spot prices currently trade around the 0.6285 region and draw support from a modest US Dollar (USD) downtick.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near a one-week low touched on Monday amid the uncertainty over US President-elect Donald Trump's tariff plans. In fact, the Washington Post reported that Trump's aides were exploring plans that would apply tariffs only on sectors seen as critical to US national or economic security. Trump, however, denied the report in a post on his Truth Social platform. This, in turn, keeps the USD bulls on the defensive and turns out to be a key factor acting as a tailwind for the AUD/USD pair.

Meanwhile, the Federal Reserve (Fed) adopted a more hawkish stance at the end of the December policy meeting and signaled that it would slow the pace of rate cuts in 2025. The outlook remains supportive of elevated US Treasury bond yields, which, along with persistent geopolitical risks, should act as a tailwind for the safe-haven buck. Furthermore, concerns about a fresh round of US-China trade war and the Reserve Bank of Australia (RBA) dovish shift should cap the Aussie. This, in turn, might hold back traders from placing aggressive bullish bets around the AUD/USD pair.

Investors might also opt to wait on the sidelines ahead of this week's release of the FOMC meeting minutes and the closely-watched US Nonfarm Payrolls (NFP) report on Wednesday and Friday, respectively. In the meantime, Tuesday's US economic docket – featuring the ISM Services PMI and JOLTS Job Openings data – might provide some impetus to the AUD/USD pair. Nevertheless, the fundamental backdrop warrants caution before positioning for an extension of the recent bounce from the 0.6180 region, or the lowest level since November 2022 touched last week.

Source: FXSTREET

To stay updated on all economic events of today, please check out our Economic calendar

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Alex

Forex

Economic

Dollar remains under some pressure as markets digest conflicting signals about the trade policy direction of the incoming Trump administration. President-elect Donald Trump dismissed media reports suggesting a sector-specific tariff plan as “fake news” but provided no further clarification. The lack of concrete details leaves markets grappling with uncertainty, unable to assess the economic impact of the administration’s trade strategies.

Despite the unease, the greenback’s pullback has been contained, with market participants turning their attention back to critical economic data and events. Key releases this week include the ISM Services PMI later today, FOMC minutes on Wednesday, and Friday’s non-farm payroll report. These events are expected to offer clarity on the Fed’s policy direction and provide a counterbalance to the prevailing trade-related uncertainties.

Meanwhile, Dollar’s earlier gains against Yen in Asian session prompted a swift reaction from Japan. Finance Minister Katsunobu Kato issued a stern warning against “one-sided, sharp moves” in the foreign exchange market. Kato emphasized that the Japanese government is closely monitoring developments and is prepared to take “appropriate action” to address excessive currency fluctuations. As the comments triggered a modest recovery in Yen, speculation is mounting that Japan could intensify its vigilance if USD/JPY approaches the psychologically significant 160 level.

In the broader currency market, New Zealand Dollar has emerged as the top performer so far this week. Sterling and Euro are also posting gains. Yen lags behind as the weakest currency, followed by Dollar and Swiss Franc. Canadian Dollar and Australian Dollar are trading in a middle range, with the Loonie showing limited reaction to Canadian Prime Minister Justin Trudeau’s resignation.

Technically, EUR/JPY’s retreat from 164.89 appeared to be completed at 160.89 with current extended rebound. Rise from 156.16, as another leg of the corrective pattern from 154.40, could be ready to resume to 166.67 and possibly above. But strong resistance might be seen from 61.8% retracement of 175.41 to 154.40 at 167.38 to limit upside.

Swiss CPI falls back to 0.6% yoy in Dec

Swiss CPI fell -0.1% mom in December, matched expectations. Core CPI (excluding fresh and seasonal products, energy and fuel) was unchanged for the month. Domestic products prices rose 0.1% mom while imported products prices fell -0.5% mom.

Comparing with the same month a year ago, headline CPI slowed from 0.7% yoy to 0.6% yoy, matched expectations. Core CPI slowed from 0.9% yoy to 0.7% yoy. Domestic products prices slowed from 1.7% yoy to 1.5% yoy. Imported products prices ticked up from -2.3% yoy to -2.2% yoy.

Looking ahead

Eurozone CPI flash is the main focus in European session, while unemployment rate will also be released. Later in the day, both Canada and US will release trade balance. But attention will mainly be on US ISM services PMI.

USD/JPY Daily Outlook

Daily Pivots: (S1) 156.61; (P) 157.28; (R1) 158.33; More…

Intraday bias in USD/JPY is back on the upside with breach of 158.06. Current rally from 139.57 is resuming to 61.8% projection of 139.57 to 156.74 from 148.64 at 159.25. Firm break there will target 161.94 high. However, break of 156.01 support will indicate short term topping, likely with bearish divergence condition. Intraday bias will then be back on the downside for 55 D EMA (now at 153.64) instead.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Dollar Struggles on Trade Policy Ambiguity, Yen on Watch as USD/JPY Approaches 160_1

Source: ACTIONFOREX

To stay updated on all economic events of today, please check out our Economic calendar

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Cohen

Commodity

Gold price (XAU/USD) struggles to capitalize on its intraday move up and trades with a mild positive bias, just above the $2,640 level during the first half of the European session on Tuesday. Against the backdrop of geopolitical risks stemming from the protracted Russia-Ukraine war and tensions in the Middle East, concerns about US President-elect Donald Trump's tariff plans and protectionist policies weigh on investors' sentiment. This, along with a modest US Dollar (USD) downtick, lends some support to the precious metal.

That said, the Federal Reserve's (Fed) hawkish shift keeps a lid on any meaningful appreciation for the Gold price. In fact, the Fed signaled that it would slow the pace of interest rate cuts in 2025. This remains supportive of elevated US Treasury bond yields, which should act as a tailwind for the USD and cap the upside for the non-yielding bullion. Traders also seem reluctant ahead of this week's release of FOMC meeting minutes and the closely-watched US Nonfarm Payrolls (NFP) report on Wednesday and Friday, respectively.

Gold price benefits from haven flows; lacks bullish conviction amid hawkish Fed

US President-elect Donald Trump's proposed tariffs and protectionist policies are expected to stoke further inflation and disrupt global trade, offering support to the safe-haven Gold price.The Ukrainian military launched a new offensive in the Kursk region of western Russia on Sunday. Russia’s Defence Ministry said that Ukraine lost up to 340 soldiers in the Kursk region.As Israel’s relentless bombardment of Gaza continues, the Israeli military said on Sunday that it has been conducting operational raids in Syria amid accusations of cease-fire violations.The Federal Reserve's projections in December implied a shift to a more cautious pace of rate cuts in 2025, with the majority of the policymakers expressing concern that inflation could reignite.San Francisco Fed President Mary Daly said on Saturday that despite significant progress in lowering price pressures over the past two years, inflation remains uncomfortably above the 2% target.Furthermore, Fed Governor Lisa Cook said on Monday that policymakers could be more cautious with further interest rate cuts, citing labor market resilience and still stickier inflation.The yield on the benchmark 10-year US government bond rose to an over eight-month high on Monday, assisting the US Dollar to attract some dip-buying on Tuesday and capping the XAU/USD. The market focus this week remains glued to the release of the FOMC meeting minutes and the closely-watched US Nonfarm Payrolls (NFP) report on Wednesday and Friday, respectively.In the meantime, Tuesday's US economic docket – featuring the ISM Services PMI and JOLTS Job Openings data – could provide some impetus later during the North American session. According to the central bank data published today, China's Gold reserves at end-December stood at $191.34 billion vs $193.43 billion at end-November.

Gold price needs to find acceptance below the 100-day SMA for bears to seize control

Gold Price Bulls Seem Non-Committed Amid Fed's Hawkish Signal_1

From a technical perspective, the overnight resilience above the 100-day Simple Moving Average (SMA) and the subsequent bounce warrants some caution for bearish traders. Moreover, oscillators on the daily chart have recovered from negative territory, which, in turn, supports prospects for some near-term upside. Any further move up, however, is likely to confront some resistance near the $2,655-2,657 horizontal zone ahead of the $2,665 area, or the multi-week high touched last Friday. The momentum could extend further towards an intermediate resistance near the $2,681-2,683 zone en route to the $2,700 mark. The latter should act as a pivotal point, which if cleared will set the stage for an extension of a two-week-old uptrend.

On the flip side, the 100-day SMA, currently pegged near the $2,626 area, followed by the overnight swing low, around the $2,615-2,614 region, and the $2,600 mark could offer some support to the Gold price. This is followed by the December swing low, around the $2,583 area, which if broken will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.

Source：FXStreet

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UK 30-Year Yield Climbs to Highest Since 1998 Ahead of Debt Sale

Source: Theedgemarkets

EUR: Will the ECB Look Through Rising Inflation?

Source: FXSTREET

Euro Extends Recovery Above 1.04 as Focus Shifts to Eurozone Inflation Data

Daily digest market movers: French HICP upbeat confirmed

Technical Analysis: EUR/USD above ground at 1.04 with blurry outlook

Source：FXStreet

Markets React as Germany's Inflation Surges to 11-Month High

Market reactions

Source: Euronews

Aud/usd Advances To 0.6300 Neighborhood, Closer To Two-week Top Set On Monday

Source: FXSTREET

Dollar Struggles on Trade Policy Ambiguity, Yen on Watch as USD/JPY Approaches 160

Swiss CPI falls back to 0.6% yoy in Dec

USD/JPY Daily Outlook

Source: ACTIONFOREX

Gold Price Bulls Seem Non-Committed Amid Fed's Hawkish Signal

Gold price benefits from haven flows; lacks bullish conviction amid hawkish Fed

Gold price needs to find acceptance below the 100-day SMA for bears to seize control

Source：FXStreet

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