It was a bad day at the office. Against a backdrop of falling geopolitical tension in the Middle East, and the ensuing relief, Sterling managed to be one of worst-performing currencies. Many economists had been more optimistic on the UK economy after the decisive UK election result, but outgoing Bank of England Governor, Mark Carney, triggered a Sterling selloff whilst highlighting risk. Carney’s concerns centred on the lack of room to cut interest rates if the economy does not improve this year, hinting that the Monetary Policy committee were debating the “relative merits of near-term stimulus”, which might include interest rate cuts or more quantitative easing (QE), both of which debase the value of the Pound.
The Pound fell to 2020 lows near the 1.3000 mark on the Dollar and the Euro pushed below the 1.1765 mark, peaking near 1.1720. As expected the Brexit Withdrawal Agreement was finally passed in the Commons, in line with expectations and there was very little impact or media attention. Sterling did regain some ground later in the US session, recovering to the 1.3080 area.
US jobless claims declined to 214,000 in the latest week from 223,000 previously, although continuing claims increased. Federal Reserve (Fed) Vice-Chair Clarida stated there is some indication that global growth headwinds are beginning to abate. Inflation was described as muted but expected to rise and the Fed would respond to any material assessment of the outlook. St Louis head Bullard stated that there is a reasonable chance of a soft landing in 2020 while near-term trade uncertainty had abated a little. Markets remained confident that rates would remain on hold in the short term.
The dollar maintained a firm tone as commodity currencies continued to lose ground, although against the Euro, did find some support below the 1.1100 level. The latest employment data is due today with consensus forecasts of an increase of around 160,000 and increased market optimism over the release after the ADP data.
A solid performance in the US Dollar has kept the downside pressure intact for the Euro, pushing the common currency to yearly lows, below the 1.11 figure.
The correction lower from late December’s peak of 1.1238 was on the back of the recovery in the Dollar’s response to easing tensions on the geopolitical front, which still continues to be dominated by the tensions between US and Iran.
In the meantime, the pair is expected to keep its current sidelined theme ahead of the Non-farm Payrolls December release in an otherwise empty docket in the Euro area.
Data to watch
13:30 - USD - Average Hourly Earnings
13:30 - USD - Non-farm Employment Change
13:30 - USD - Unemployment Rate
Posted in Daily Market News on Jan 10 2020