Can we spend our way past 1.4000?
A lack of UK economic data and a dearth of Brexit headlines only assisted underlying Sterling sentiment. There was underlying support from expectations that reserve managers were increasing their Sterling holdings and moving away from the US Dollar; also, increased positivity in the Brexit outlook fuelled support for the Pound.
There was some support after Prime Minister May’s meeting with French President Macron which was seen as constructive despite his Brexit comments. After finding support on approach to 1.3800 early on, the Pound tested the 1.3900 mark at the close against the Dollar while testing 1.1365 against the Euro.
Sterling opened above 1.3900 this morning as the Dollar remained on the defensive with markets braced for the latest UK retail sales report amid expectations of a significant monthly decline. If retail sales forecasts are incorrect, the repositioning could cause fresh highs in Cable.
US housing starts had a poor showing yesterday, dipping to 1.192 million in December. Philadelphia Fed manufacturing index was also below consensus forecasts, falling to 22.2 for January. On the other hand, US building permits increased to 1.3 million. Further, US weekly jobless claims posted a firm reading of 220K, indicating a revival of the US labour market in January.
The main headline for the Dollar yesterday resided in the threat of a Government shutdown. Uncertainty weighed on the Dollar and this was reflected in the currency’s index; politicians cut it close with signing a spending bill to avoid the shutdown. The Senate must now agree to pass the spending bill as the Fed spending authority is set to expire today.
The Euro was seen trading higher against the Dollar, moving up to 1.2264, the high before supply took the single currency back to closing within the 1.2230s.
The Euro uptrend is reportedly being capped due to fears that European Central Bank (ECB) president Draghi will convey a dovish message next week. Also, the recent ECB rhetoric was directed at the pace of the Euro’s ascent, forcing investors to question whether they have run ahead of themselves.
Today, we see the German PPI is set to decelerate to 2.3% y/y in December. The Eurozone current account is set to reach a surplus of €31.2 billion in November.
Data To Watch:
07:00 EUR Producer Price Index (MoM) (YoY) (Dec)
09:30 GBP Retail Sales ex-Fuel (MoM) (YoY) (Dec)
09:30 GBP Retail Sales (YoY) (MoM) (Dec)
18:00 USD Fed’s Quarles speech
18:00 USD Baker Hughes US Oil Rig Count