Brexit deadlock weighs heavily on Sterling
The deadlock over Brexit negotiations with the EU is weighing heavily on the market and the Pound. The EU is maintaining a tough stance saying it will not renegotiate the terms of the Withdrawal Agreement and the backstop issue is arguably the main concern.
A promise of funds to deprived areas would see some Labour MPs vote for the Brexit deal, with the news causing a slight rally in the Pound versus the Dollar and the Euro. However, this slight rally did not last and the currency plateaued on the back of sentiment remaining cautious.
PMI figures are the only real piece of information due out today, but as ever news on Brexit will be watched keenly and will provide the most volatility.
The Dollar managed to gain some stability despite Wednesday’s dovish Federal Reserve statement and as the EURUSD dipped below 1.1450. The Dollar has held firm this morning ahead of the US payrolls report later in the day.
Initial US jobless claims increased to 253,000 in the latest week from 200,000 and the highest reading for 16 months. The employment cost index recorded a 0.7% increase for the fourth quarter of 2018 to give a 2.9% annual increase from 2.8% previously. New home sales data was stronger than expected with an annual rate of 657,000 from a revised 562,000 rate the previous month. The Chicago PMI index declined to 56.7 for January from 65.4 previously and was well below consensus forecasts.
The national ISM manufacturing release will be watched closely today given that there was a sharp decline in last month’s reading as well as the payrolls report.
Yesterday saw Eurozone GDP growth increase by 0.2% for Q4 of 2018 which was in line with consensus expectations. This good news, however, this was followed by the news that Italian GDP had contracted by 0.2%, therefore putting the economy into a technical recession, dampening sentiment. Finally, German unemployment declined but was still the weakest release since June 2017.
The Euro struggled to break 1.1500 versus the Dollar with the head of the Bundesbank Weidman stating that German GDP was likely to be well below 1.5% in 2019, which didn’t help the single currency.
Across the Eurozone, we will see manufacturing PMI numbers for January for countries including Germany, the EU and the UK. All eyes will be on the EU’s preliminary CPI numbers so we can expect some volatility in early trading.
Data to watch:
01:45 CNY Caixin Manufacturing PMI (Jan)
06:45 CHF SECO Consumer Climate (3m) (Q1)
07:30 CHF Real Retail Sales (YoY) (Dec)
08:55 EUR Markit Manufacturing PMI (Jan) (Germany)
09:00 EUR Markit Manufacturing PMI (Jan)
09:30 GBP Markit Manufacturing PMI (Jan)
10:00 EUR Consumer Price Index – Core (YoY) (Jan)
10:00 EUR Consumer Price Index (YoY) (Jan)
13:30 USD Nonfarm Payrolls (Jan)
13:30 USD Average Hourly Earnings (YoY) (Jan)
13:30 USD Labor Force Participation Rate (Jan)
13:30 USD Average Hourly Earnings (MoM) (Jan)
13:30 USD Unemployment Rate (Jan)
14:30 CAD Markit Manufacturing PMI (Jan)
14:45 USD Markit Manufacturing PMI (Jan)
15:00 USD Michigan Consumer Sentiment Index (Jan)
15:00 USD ISM Price Paid (Jan)
15:00 USD ISM Manufacturing PMI (Jan)