Brexit uncertainty still the driving factor
The UK labour market results surprised, comfortably beating forecasts with 208,000 additional jobs and the jobless claimant count increased by, the lowest since the 1970s. Headline average earnings growth held at 3.2%, beating expectations of a small decline and underlying growth met expectations at 3.4% from 3.5%. The positive surprise follows the news that the UK economy grew at the slowest pace since 2013, offering some reassurance and Sterling gained following the release.
Futures market data indicated that the chances of a UK interest rate cut next week had dipped slightly to around 62%. Sterling pushed to highs around 1.3080 against the Dollar before fading whilst testing resistance near 1.1765 on the Euro. Friday’s PMI business confidence data has generated some caution and speculation remains that the EU would offer less favourable terms, maintaining underlying Brexit concerns. Sterling opens this morning much where it closed, Euro trading circa 1.1765, and the Dollar near 1.3050.
After a positive tone on Monday, trade rhetoric was less favourable yesterday as President Trump stated how serious he is about auto tariffs on European cars if no trade deal is agreed. The US Philadelphia Fed non-manufacturing survey increased slightly to 13.4 for January from 13.2 previously. All the main components edged stronger on the month with significant upward pressure on wages and companies were also more optimistic over the outlook. Recent survey evidence from the US has been generally positive which helped underpin Dollar sentiment with expectations that the US economy could again out-perform the Euro-zone this year.
The German ZEW business confidence index strengthened to 26.7 for January from 10.7 previously which was above consensus forecast and the highest reading since July 2015. The assessment of current conditions also improved on the month and the Euro-zone index strengthened to the highest level since February 2018. The data provided an element of initial Euro support, pushing the currency above 1.1100 against the Dollar. German yields moved lower, however, which sapped support.
The Euro was unable to hold above 1.1100 and fell to just below the key level at the European close as commodity currencies also edged weaker on the day. The Euro is edging slightly lower this morning to 1.1075 as across the pond, the Dollar continues to maintain a firm overall tone.
Data to watch
All Day – All Currency – WEF Annual Meetings