Market run-through

While last week was all about employment, this week it’s all about central banks, with the Fed, the BoE, and the ECB all set to meet over the coming days. More about that anon. Most of the currency market, except for the Japanese yen, marked time last week ahead of Friday’s Non-Farm Payrolls data, which was eventually announced were stronger than expected. The response was immediate with the dollar gaining roughly 1%.

This week, we enter into what is most likely the last trading week of the year with any decent liquidity in the markets as we rapidly approach the festive season. Naturally, the central banks will dominate the markets, despite inflation data being released in the US tomorrow and employment data on the same day in the UK. As usual, the Fed is first out of the blocks with the announcement of its decisions on Wednesday evening. In reality, the decision of no change in rates is a nailed-on conclusion, as it is elsewhere, but the tone of Chairman Powell’s press conference will set the mood music. It is hard to believe that he will be anything other than cautious and reiterate his higher-for-longer mantra. With financial conditions easing as long-term yields drop and employment strong, the threat, however small, of inflation reigniting is still present. Consequently, there is little chance of any mention of rate cuts, and in reality, the threat of more tightening is more likely. The Bank of England will also leave rates unchanged, probably with a vote split of 6-3, and will no doubt continue to talk tough on inflation. Finally, the ECB, despite being favourites to cut rates first in 2024, will maintain its tough posture.

Richard Matthews, Head of FX and Payment Partnerships

Behind the desk

I know it may sound repetitive each week, but Bitcoin is still booming! Over the past week, BTC reached as high as $44,000 USD; every week seems to bring a new milestone. Just a few weeks after regulators charged two of the biggest names in crypto, Changpeng Zhao and Sam Bankman-Fried, the former leaders of Binance and FTX exchanges respectively, BTC has continued to show its dominance, up over 160% for the year. Even those in the finance industry who aren’t believers in cryptocurrencies have admitted that these insane percentage gains are hard to ignore. Katie Martin from the Financial Times posits, ‘It is hard to ignore the startling rally in bitcoin. Trust me, I’ve tried.’ One chief investment officer has said that everything has been thrown at BTC yet it holds up. The crypto market is normally known for its sharp rises and painful drops, but it seems like Wall Street is beginning to warm up to crypto.

Robinhood, the famous commission-free investing broker, has launched crypto trading services in the EU. This strategic move marks Robinhood’s second big expansion outside of the United States. This move aligns with several of the U.S.’s major crypto firms turning to the European Union for growth after tougher regulations stateside. Despite many negative stories surrounding the crypto industry, the EU has recently proposed regulations to bring stricter rules for crypto trading platforms. Johann Kerbrat, Robinhood Crypto general manager, confirms that these regulations are part of the reason Robinhood has chosen to expand to this location, along with the promise of transparency and security when trading with their service. FTX blurred lines between trading venues and custodians, so as you can imagine, any firm with new initiatives must run a very tight ship with all eyes on the industry.

On ONE’s trading desk, we observed an increase in ETH liquidation, especially over the $2,200 USD price point. There was a feeling that sellers were trying to pull ETH below that $2,200, but the bulls held their ground and are now trying to turn that resistance into support. Ethereum transactions per day reflect the daily number of transactions completed on the Ethereum network. The number of transactions so far for December has increased slightly from those in November and October, yet the number of transactions is still down over 30% from a year ago. There is still a lot of room for more activity on the ETH network; unfortunately, this would be a further increase in transaction fees. Don’t forget, that Ethereum’s Ether is not the only coin that exists on the network. There are other coins such as Tether’s USDT, Circle’s USDC, and MakerDAO’s DAI, just to name a few. Excited to see what this week will bring!”

Alex-Desmond Brathwaite, Senior Trader

Chart of the week

The week ahead brings us our final round of G10 central bank meetings this year, with the FOMC, BoE, and ECB all announcing policy over the coming few days – as well as a handful of others. While all are set to keep benchmark rates unchanged, market focus is rapidly moving towards where rates are set to head in 2024, with the dovish repricing that’s dominated H2 23 having picked up some significant pace of late, particularly over the last fortnight or so. Futures contracts now imply that the ECB’s deposit rate will end next year almost 150bp below its current level of 4% which, while undoubtedly punchy, could well be justified given the rapid tumble in inflation, as well as continued anaemic economic growth. Elsewhere, however, markets appear to be getting rather ahead of themselves, in expecting both the FOMC and BoE to cut by more than 100bp over the next 12 months. Though aggressive pushback on this pricing from policymakers appears unlikely this week, a reality check to the market’s desperation to price a policy pivot may come early on next year.

Michael Brown, Market Analyst at Pepperstone

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