1.4000+ now the norm?
December’s government borrowing figures printed lower than expected, partly due to an EU credit. For the first nine months of fiscal year 2017/18, there was a decline in the deficit to £50.0bn from £56.6bn the previous year, although revenue growth was subdued.
Progress on the Brexit front and an upbeat CBI total trends survey contributed to a cable rally that has extended more than 5 cents since January 11.
While UK unemployment is expected to remain at a 40 year low of 4.3%, the spotlight will be on wage growth that is seen rising 2.5% over the year in November. With inflation at 3.1% the year to November, GBP is seen as vulnerable to any signs of wages decelerating.
Michel Barnier, the EU’s chief negotiator, stated that the UK still needs to produce an “Irish solution”, which helped trigger a limited corrective retreat against the Dollar, although there was a fresh attack on 1.4000 later in the New York session.
Sterling is trading up 0.3% at around 1.4035 against the US Dollar and driving upwards of the 1.1400 mark against the Euro ahead of the UK labour market report due later today.
January’s US Richmond Fed manufacturing index declined to 14 in January, down from 20 in December. The data fell short of consensus expectations while the “prices received” component weakened slightly from December levels. There was also a retreat in the Philadelphia Fed non-manufacturing index, although wages and price components strengthened for the month. There was no significant shift in economic outlook expectations following the tier 2 releases but the Dollar lost ground once again during the New York session. Expectations of a stronger global economy undermined Dollar demand and the Euro pushed to highs just above 1.2300.
Fed Reserve Governor nominee Marvin Goodfriend stated that inflation is on the rise, albeit slowly and that Fed policy was more or less on the right path. The Senate confirmed Jerome Powell’s accession to Fed Chair from the end of this month. The Dollar was unable to gain any respite as the currency index declined to fresh three-year lows below 90.0.
The German ZEW investor confidence index strengthened to 20.4 for January from 17.4 previously and above consensus expectations as the current conditions component also strengthened. Eurozone consumer confidence strengthened to 1.3 for January from 0.5 and a fresh record high for the series, maintaining expectations of robust consumer spending.
The Euro advanced to 36-month highs around 1.2335 against the Dollar overnight before a dip to near 1.2300. The next Euro focus will be Thursday’s European Central Bank (ECB) meeting.
Data To Watch:
08:30 EUR Markit Manufacturing PMI (Jan)
08:30 EUR Markit Services PMI (Jan)
08:30 EUR Markit PMI Composite (Jan)
09:30 GBP Average Earnings excluding Bonus (3Mo/Yr) (Nov)
09:30 GBP Claimant Count Change (Dec)
09:30 GBP ILO Unemployment Rate (3M) (Nov)
09:30 GBP Average Earnings including Bonus (3Mo/Yr) (Nov)
09:30 GBP Claimant Count Rate (Dec)
14:00 USD Housing Price Index (MoM) (Nov)
14:45 USD Markit Manufacturing PMI (Jan)
14:45 USD Markit Services PMI (Jan)
14:45 USD Markit PMI Composite (Jan)