GBP

Weaker global risk appetite undermined Sterling yesterday morning and the modestly better than forecast labour market data had little positive effect and the Pound reached lows of 1.3610 against the US Dollar. As risk conditions improved the pound swiftly recovered. The CBI retail sales data revealed a sharp contraction to -50 in January, an 8-month low and well below consensus forecasts of -26 with the latest lockdown largely to blame and no recovery expected in February. The Pound continued to benefit from vaccine optimism despite the UK Covid mortalities surpassing 100,000 and sentiment held firm with support on valuation grounds.As risk appetite also Sterling leapt above 1.3700 the Dollar and near 1.1285 against the Euro.

Sterling opens firmly this morning at 1.3750 to the Dollar and 1.1300 against the Euro.

USD

The Richmond Federal Reserve (Fed) manufacturing index declined slightly to 14 for January from -19 the previous month and just below market expectations. There was a slowdown in the rate of new orders growth, but employment continued to increase and prices increased at a faster pace.

The Philly Fed non-manufacturing index recovered to -17.5 for January from -26.6 previously with a marginal increase in new orders while there was also a small increase in the number of full-time employees on the month.

Markets were continuing to monitor US fiscal policy developments as the Biden Administration and key congressional figures plotted the best way to secure a substantial fiscal stimulus. There were further concerns that the support bill could be delayed until March which hampered sentiment to some extent, although there was still important debate over the dollar implications.

Overall risk appetite stabilised during the day which curbed potential dollar demand and commodity currencies were able to generate significant traction.

EUR

Italian Prime Minister Conte submitted his resignation yesterday, although the overall impact was measured with expectations that early elections would be avoided with meetings expected between parties on the formation of a new government due to begin today. 

ECB council member Villeroy stated that inflation could exceed 2% on a temporary basis under the ECB goal with the single currency overall holding steady. With risk appetite stabilizing, the Euro gradually recovered to the 1.2160 area. Reports coming out after the European close stating that the ECB were querying Dollar weakness despite the stronger US economy which suggested a possible verbal intervention could be stepped up.

As of writing, the Euro currently trades around the 1.2155 mark against its US counterpart. 

Data to watch

14:00 - USD - FOMC Statement 

14:00 - USD - Federal Funds Rate

14:30 - USD - FOMC Press Conference