HUNGARY: Orban to Meet Macron in Paris Ahead of EU Summit

Modest dovish moves in GBP STIRs in reaction to Trump levying fresh tariffs on China, Canada & Mexico.

• Spill over from a pullback in Tsys (likely on related inflation worry) limits the early dovish move in UK STIRs.
• BoE-dated OIS little changed to ~2bp more dovish across ’25 meetings.
• 24bp of cuts priced for this week’s gathering, 45bp priced through May and 78bp priced through year-end.
• SONIA futures flat to +2.5.
• Widespread consensus looks for a 25bp cut at this week’s decision, which should leave focus on the forward-looking elements surrounding the decision.
• We look for cuts this week and in May.
• Expect our full preview to be released tomorrow.

The broader USD holds onto the bulk of its overnight gains, with the BBDXY ~1% higher on the day at typing.

• USD outperformance comes after U.S. President Trump levied fresh tariffs on China, Canada & Mexico and pointed towards action against the EU.
• Initial cross-market reaction to the tariffs has eased a little since a WSJ report pointed to “a sign that China is eager to get trade talks going.”
• USD/CAD has pierced its ‘16/COVID double top, peaking at 1.4793 before fading back to 1.4700, ~160 pips higher on the day.
• USD/MXN was unable to challenge its ’22 high at 21.4676, peaking at 21.2932 before fading back to 21.0835.
• Note that Trump will speak with both Canadian & Mexican officials “this morning.” That news prevented further CAD & MXN losses, with some pointing to the potential for relief.
• EUR/USD printed a fresh cycle low at 1.0141 before recovering to 1.0230.
• JPY a little more shielded than G10 peers given the weakness in equities, although the move lower in USD/JPY has reversed. Spot last +40 at ~155.60 vs. session lows of 154.67. Initial support and resistance of note located at 153.72/156.75, bullish theme intact.
• Eurozone CPI, manufacturing PMIs and the U.S. ISM manufacturing survey provide the datapoints of note today.
• Fedspeak from Bostic & Musalem, as well as comments from ECB’s Simkus, also due.
• Note EU leaders will meet in Brussels, so we may also get some tariff soundbites from that event.

Last week’s ERH5/M5 flattening has extended, with renewed tariff-related growth concerns increasing expectations for a deeper ECB cutting cycle through the course of this year.

• The spread is -3.0 ticks at -28.0 at typing, narrowing the gap to the Dec 17/Dec 20 lows at -29.0.
• US President Trump followed through with tariff threats on Canada, Mexico and China on Friday evening, and has since re-iterated threats against the EU.
• Euribor futures are +3.0 to +6.5 ticks through the blues, off overnight highs alongside Bunds as markets assess China’s likely reaction to the tariffs, and President Trump’s planned calls with Mexico and Canada later today.
• Dovish repricing also seen in ECB-dated OIS, with 87bps of easing now priced through year-end (vs 77bps at Friday’s close). Sequential cuts across the next three gatherings: 26.5bps in March, 20bps in April and 19bps in June.
• Today’s calendar is headlined by the final January flash Eurozone inflation readings at 1000GMT/1100CET. Dutch flash inflation was 2.9% Y/Y (vs a four-analyst consensus of 3.2%). Our tracking still suggests the headline consensus of 2.4% Y/Y is intact, though.
• ECB’s Simkus is scheduled to speak at 0900GMT. Over the weekend, Knot noted that policy restriction can be removed once inflation is back at 2%.