US: FED Reverse Repo Operation

RRP usage retreats to $160.219B this afternoon from $183.669B on Monday. Compares to $98.356B on Friday, December 20 - the lowest level since mid-April 2021. The number of counterparties rises to 59 from 51.

• The ICE USD index sits half a percent lower on the session Tuesday, as the greenback extends a moderate retreat ahead of the key CPI data tomorrow. Softer-than-expected PPI data helped the greenback consolidate overnight weakness, with higher long-end US yields and lower equities unable to support the dollar.
• It is clear that the Fed will hold in January, with the first plausibly “live” meeting not until March. But with pricing having shifted so quickly away from 2025 cuts, it’s a good juncture to assess whether markets have gotten too hawkish, with the greenback potentially vulnerable to a deeper correction.
• Price action has seen EURUSD briefly climb back to the 1.0300 handle, rising 0.5% on the session. Higher German yields have been supportive of the single currency at the margin, further evidenced by EURGBP rising to a 4-month high of 0.8451.
• As noted, a sustained breach of 0.8448 resistance would signal scope for a move towards 0.8494, the August 26 high. Separately, the August highs reside at 0.8625, which could garner attention should UK fiscal concerns/uncertainty deteriorate further. Both the 20-day and 50-day EMA’s represent initial support for the cross, currently intersecting around 0.8325. UK CPI is due early Wednesday.
• Overall, broad pressure on core fixed income continues to weigh on the Japanese yen, with EURJPY extending its intra-day advance to 0.8% and now 260 pips above the Monday lows around the psychological 160.00 mark. USDJPY has also risen back to 158.00, as market participants continue to weigh rhetoric from Japanese officials ahead of the January BOJ decision.

A new survey from Gallup found that Americans “offer a largely negative assessment” of the progress made during the administration of President Joe Biden on 18 economic, national and international issues.

• Semafor notes on the survey: “Majorities said they believe the US lost ground over the past four years in addressing the federal debt, immigration, the wealth gap, the economy, the US’ place in the world, and crime... Meanwhile, pluralities said they think the US has fallen behind in other areas like infrastructure, despite Biden presiding over the passage and implementation of a sweeping bipartisan infrastructure law.”
• Yesterday, Biden defended his legacy in his final foreign policy speech, arguing he oversaw the rehabilitation of US multilateralism and enacted policies that will bolster the US’ global standing in the future.
• Biden: “...thanks to our administration, the United States is winning the worldwide competition. Compared to four years ago, America is stronger, our alliances are stronger, our adversaries and competitors are weaker.”
• On China, Biden said: “Today, I can report to the American people we’re in a better strategic position for long-term competition with China than we were when I took office… According to the latest predictions, on China’s current course they will never surpass us.”

Figure 1: Progress Report in 18 Areas During President Biden’s Four Years In Office

Source: Gallup