Sterling failed to hold a move above 1.3700 against the Dollar yesterday and the fresh failure to hold above resistance was a significant factor in eroding support with a similar situation occurring against the Euro. The UK currency gained an element of support from optimism over the UK vaccine programme, especially given concerns over near term difficulties surrounding vaccine programmes in the Eurozone and US.
The UK currency dipped to 1.3650 against the Dollar, but was broadly resilient even when there was a dip in global equities and to 1.1240 against the Euro. UK unemployment increased to 5.0% in the three months to November from 4.9% and below expectations of 5.1% while the universal claimant count increase was held at 7,000. The data overall was slightly stronger than expected, but Sterling was hampered by slightly weaker risk conditions.
President Joe Biden's willingness to discuss his $1.9 trillion stimulus bill with Republicans and lower the final package scope is worrying investors with the safe haven dollar gaining ground across the board.
The Senate approved Janet Yellen's nomination as Treasury Secretary and her initial deliberations with moderate Democrats and Republicans will be key to understanding where the wind blows. The White House may also decide to go it alone, passing the full package even without broad support. For markets, the sooner and the bigger equals the better. In such a scenario, the Dollar would fall, while protracted talks would boost the greenback.
The German IFO business confidence index dipped to 90.1 for January from 92.2 previously and significantly below consensus forecast of 91.8. The current conditions index dipped to 89.2 from 91.3 previously while the expectations index also weakened to 91.1 from 93.0 with both metrics also well below market expectations. Confidence in the short term Euro-zone outlook dipped further following the IFO data with fears that there would be a further loss of short-term traction.
Following reports that initial deliveries of the AstraZeneca vaccine would be lower than expected, unease of the near term outlook of the single currency grew with further disagreements between the EU and the vaccine suppliers.
With the hawkish take from last week’s ECBs statement, the central bank's chief economist Philip Lane reiterated that the PEPP bond-buying envelope need not be used if favourable financing conditions can be maintained which proved an element of support for the Euro coinciding with reports that Italian Prime Minister Conte would resign, which proved largely unimpactful to the market.
As of writing, the Euro currently trades around the 1.2120 mark against its US counterpart.
Data to watch
10:00 - USD - CB Consumer confidence
Posted in Daily Market News on Jan 26 2021