GBP: EUR/GBP Still in Favour Toward London Close

Rates markets helping lead the Greenback lower here, triggering this renewed rally in EUR/USD (new daily high at 1.0741) - all led by the further push for dovish repricing in Fed-dated OIS and the soft ADP employment change.

• USD/JPY a standout here as the pair is narrowing the gap with the Tuesday lows, which undercut as first support at Y148.10. Volumes are healthy here after several bumper sessions of activity (both the Monday and Tuesday sessions saw FX futures volumes ~50% ahead of average) and this will likely remain the case into Friday's NFP.
• Data and tariff risk may keep markets volatile intraday - particularly given Lutnick's confirmation that an announcement on CA/MX tariffs could come as soon as this afternoon, as well as the ISM Services print, to be watched carefully for both elevated prices paid, and soft employment subcomponents.
• On Mexico and Canada, the Mexican President has confirmed that a call with Trump "could be Thursday morning" - seemingly after any potential announcement on trade later today, while adding that Mexico will reach out to Canada if tariffs continue - suggesting a possible joint front on counter-tariffs.

US President Donald Trump is expected to meet Republican hardliners at the White House today to drum up support for a Continuing Resolution to keep the government funded through September 30. The meeting will be another test of Trump's influence with conservatives after his outreach flipped the votes of a handful of deficit hawks on the House budget blueprint. 

• Rep Thomas Massie (R-KY) is likely a 'hard no' but Senator Rick Scott (R-FL) and House Freedom Caucus chair Andy Harris (R-MD) indicated yesterday they would follow leadership guidance on this funding deadline.
• House Speaker Mike Johnson (R-LA) is likely to put the measure on the floor next week to avert a government shutdown on March 15. The bill is expected to be ‘clean’ – meaning funding will continue at Biden administration-era levels.
• Democrat strategy remains unclear. They have leverage but have been historically unwilling to play brinksmanship with a shutdown. House Approps Chair Tom Cole (R-OK) warned yesterday: "I think the 13 Democrats sitting in Trump seats ought to think twice about shutting down Trump's government,"
• A prevailing view is that enough Senate Democrats are likely to join with the GOP to pass a funding package, if Johnson can force it through the House.
• The risk of a government shutdown in 2025 ticked up slightly to nearly 60%, according to Polymarket.

Figure 1: Government Shutdown in 2025, %Implied Probability

Source: Polymarket

Dovish readthrough for Fed pricing on the back of the softer-than-expected ADP print means that Fed funds futures once again fully discount 3x 25bp cuts through year-end, with ~80bp of easing now priced through the Dec FOMC vs. ~73bp ahead of the data.

• A reminder that as little as ~37bp of cuts were priced over the same horizon as recently as mid-February.
• ~14.5bp of cuts priced through May vs. ~12bp ahead of the data, with ~32.5bp of cuts showing through June vs. ~28.5bp ahead of the data.
• The miss in the headline ADP figure, coupled with mostly negative revisions to recent months, will do little to placate deepening growth concerns that have driven much of the dovish repricing seen in recent weeks.
• Indeed, the ADP release noted that the survey “suggests a hiring hesitancy among employers as they assess the economic climate ahead”.
• However, we have also noted the wide differences between the survey and private payrolls figures in recent months.
• The employment component of the impending ISM services survey presents the next labour market indicator worth watching.