BoE To Solidify Sterling Strength
The effective ban on overseas travel for leisure purposes will continue to undermine inward UK tourism revenue, but there is likely to be a net positive impact on the UK balance of payments given that the UK traditionally runs a substantial deficit on travel income in the current markets.
The UK vaccine programme also continued to give the UK currency support, although the impact faded to some extent amid concerns over UK fundamentals. Overall risk conditions were slightly less confident but Sterling held firm with the UK currency strengthening to a 33-month high just below the 1.3800 mark against the Dollar and to 1.1396 against the Euro.
Comments from Bank of England Governor Bailey will be watched closely today for further evidence on the central bank’s stance with overall risk conditions providing underlying Pound support.
The US NFIB small-business confidence index retreated slightly to 95.0 from 95.9 previously. The US JOLTS data recorded a slight increase to 6.65mn for December from 6.57mn the previous month, although the overall impact of data releases was very limited.
The US Consumer prices data will be watched closely on Wednesday given the increased focus on inflation expectations and the potential implications of higher reported inflation over the next few months. A stronger than expected figure could provide initial dollar support on expectations of higher US yields.
The German trade surplus edged higher for December, although exports were only able to secure a marginal advance on the month as the Euro continues to hold a firm tone. In early Europe, the single currency is challenging the 1.2130 area against the Dollar amid fresh losses for the US currency as further optimism around the Euro-zone coronavirus outbreak being brought under control, underpinning recovery hopes.
The Euro initially failed to post further gains in the US session as the Dollar attempted to stabilise, but with support on dips, the Greenback failed to generate any significant traction. With the Euro edging higher after the European close, a continuation of the trend has seen a move higher continue into Wednesday’s early trading. With the Euroland economic docket coming in light, directional bias could come from comments Fed Chair Powell will be making later today which will be watched closely by the markets.
Data to watch
08:30 – USD – CPI
08:30 – USD – Core CPI
10:30 – USD – Crude Oil Inventories
12:00 – GBP – BOE Gov Bailey Speaks
14:00 – USD – Fed Chair Powell Speaks