POWER: EU PPA Prices on Track to Rise on Month, Up 16% on the Year So Far

• The Japanese Yen is outperforming on Wednesday, as lower core yields and BOJ rhetoric have boosted local FX sentiment. USDJPY has declined 0.77% at typing and is around 130 pips off session highs at 156.70.
• As a reminder, headlines from BoJ Governor Ueda have crossed overnight, reiterating that a decision on whether to raise rates will be made next week (so largely echoing Deputy Governor Himino's remarks from yesterday). The probability for a hike on Jan 24 has now risen to around 70%. Alongside this dynamic, lower core yields have assisted the move lower for USDJPY, with the pair slipping below its 20-day EMA for the first time since Dec 12.
• With Fed pricing having shifted so quickly away from 2025 cuts, CPI data today is a good juncture to assess whether markets have gotten too hawkish, and a deeper correction for USDJPY will target 156.02 (Dec 31 low) and 154.71, the 50-day EMA.
• GBP volatility has also been a key feature of the early Wednesday session, following the lower-than-expected UK CPI data. While sterling initially traded weaker on the release (GBPUSD down to a 1.2163 low), the potentially good news for the UK economy and the fact the downside surprise was mostly driven by volatile components assisted a sterling recovery.
• GBPUSD reversed as high as 1.2241, with similar price action for EURGBP seeing the cross briefly slip back to 0.8420.
• The USD index sits 0.2% lower on the session, extending its pullback to around 1.1% from cycle highs earlier in the week. All focus will be on the US CPI release as the near-term driver for US yields and associated greenback sentiment.

Today, EFSF, the European Financial Stability Facility, rated Aaa (Moody’s) / AA- (Fitch) / AA- (S&P), has sent a Request for Proposal to a selection of banks from the EFSF/ESM Market Group with regards to an upcoming transaction, subject to market conditions.

• We had written in our Issuance Deep Dive that we expected a dual-tranche EFSF syndication in January. There has been a dual-tranche transaction in early January each year since 2021 with the transactions gradually growing in size (E5.0bln in 2021, E5.5bln in 2022, E6.0bln in 2023 and E7.0bln in 2024). We see E6.0bln as the minimum transaction size with a larger transaction very possible.
• We don't have a strong view regarding the bonds on offer, but we expect the transaction to take place on Monday or Tuesday next week.

EURIBOR FIX - EMMI/Bloomberg.

• EUR001W 2.9160 -0.0100
• EUR001M 2.8430 -0.0090
• EUR003M 2.7480 -0.0130
• EUR006M 2.6570 -0.0280
• EUR012M 2.5590 -0.0530