STIR: US Rates Consolidate Hawkish Shift, Next Hike Not Seen Until Mid-2027

Politico reports that the UK's Chancellor of the Exchequer, Rachel Reeves, is set to call for ties with the European Union to be rebuilt. Politico reports an extract from the speech stating, "There are three big economic blocks: US, China and Europe. We will always seek every opportunity to grow our economy and these trading relationships, but ultimately only one of these is on our doorstep, and so the biggest prize is closer integration with Europe.”

• Reeves is due to speak at a Bruegel event at the LSE this evening at 18:00GMT (13:00ET, 19:00CET).
• Discussing Brexit has become of a 'third rail' for the governing centre-left Labour party, something that it avoids touching at all costs. In the 2016 referendum, Labour backed the Remain campaign. Prior to the UK formally leaving the EU in 2020, Labour supported a second referendum, but since then, under PM Sir Keir Starmer, it has not formally advocated for a new vote.
• The issue has recently raised its head, with Health Secretary Wes Streeting appearing to back the UK joining a customs union with the EU in a Dec 2025 interview, despite this not being the gov'ts official position. This was seen as laying down a challenge to Starmer, a view that will only intensify amid today's reports that Streeting could look to oust the PM sooner rather than later.
• The Brexit issue has slipped down the list of main political issues facing the country, according to polls. YouGov's issues tracker has just 14% of respondents in February selecting it as one of their three key issues, compared to 53% for the top issue (the economy) and 49% for immigration in second. 

Chart 1. Opinion Polling, Most Important Issues Facing the Country, %

Source: YouGov

• Although much of the focus has been on the yen over the past two sessions, the Ice USD index has been gradually edging lower, approaching 96.50 as we await the key US employment figures later today. It’s been well noted that the DXY’s recovery to the December lows around the 98.00 mark appears to have provided an attractive entry point for those looking to reengage shorts.
• Yesterday’s retail sales data has certainly added to the renewed greenback pessimism, alongside the dovish repricing across the US curve. This dynamic provides an important backdrop for today’s payrolls report, as weak figures may bolster bets on imminent easing from the Fed. The data will need to be assessed holistically rather than focusing on any single number, although the unemployment rate should offer the cleanest single take.
• With Japan out for a national holiday today, the JGB stabilisation theme has allowed the yen to extend its post-election upswing, with the US data assisting the squeeze. USDJPY broke swiftly through the 100-day MA on Tuesday, and spot has traded down to 152.80 overnight, narrowing the gap substantially to 152.10 support.
• The sharp downswing for GBPJPY has seen spot extend below the 50-day EMA to fresh 2026 lows. The average has been a notable pivot given the fact we have not posted a daily close below it since October, and it acted as perfect support on Jan 26. Next support is seen at 206.78, the Dec 16 low.
• Elsewhere, AUDUSD broke above the 0.71 handle overnight after RBA's Hauser said the country's inflation rate is too high and the RBA will take all necessary measures to bring it under control. 0.7128 highs bring us closer to the 2023 peak, at 0.7158.
• MBA Mortgage Applications are scheduled ahead of payrolls. Fed's Schmid, Bowman and Hammack will appear while ECB hawk Schnabel is also scheduled.

Headlines crossing via Bloomberg:

• "*CHINA MAY CONSIDER PROBING WINE FROM FRANCE: CCTV ACCOUNT"
• "*CHINA TO TAKE COUNTERMEASURES VS EU IF IT ADOPTS DUTIES: CCTV"

Note that this follows a report which said (via Reuters): "The European Union should consider either an unprecedented 30% across-the-board tariff on Chinese goods or a 30% depreciation of the euro against the renminbi to counter a flood of cheap imports, a French government strategy report said on Monday."