UK DATA: Stagflationary Signals In Jan Services PMI

• Markets are continuing to pare ECB easing bets following the higher-than-expected data releases across the Eurozone PMIs and the German inflation print for Hesse. As such, the Euro is strengthening and is among the best performers in G10.
• Alongside the softer greenback, EURUSD has extended its appreciation above the prior breakout level of 1.0335, taking the pair to an intra-day high of 1.0369. Overall, the trend needle continues to point south, and initial firm resistance is at 1.0414, the 20-day EMA.
• EURJPY is standing out, rising 0.75% at typing amid the notable weakness for the Japanese Yen overnight. We have traded above the Jan 02 high while the focus will be on 165.04, the Nov 15 high and a key short-term resistance.

• MNI: UK FINAL DEC SRVICES PMI 51.1 (FLASH 51.4); NOV 50.4

Firmer-than-expected Hesse CPI data out of Germany (based on comparisons with the national CPI expectations) drives further hawkish repricing on the ECB-dated OIS strip, with 100bp of cuts now priced through ’25.

• This compares to 115-120bp seen just before the Christmas break.
• ~26bp and ~27bp of cuts show over the next two ECB decisions, respectively, as market-implied odds of an upsized rate cut are pared further.
• A reminder that methodology alterations and regional holidays means that Hesse provides the only major regional CPI release ahead of this afternoon’s German national CPI release.

• Euribor futures are 3.0-5.5bp lower at typing.
• ERZ5 8.0 off its November low and 11.0 off its October low.
• SOFR/Euribor and SONIA/Euribor Dec ’25 spreads continue to move away from their late ’24 highs.

Fig. 1: SOFR/Euribor and SONIA/Euribor December ’25 (Z5) Spreads

Source: MNI - Market News/Bloomberg