Commons defeats government again
With no UK economic data yesterday, Sterling was driven by domestic politics which produced a mixed day. The government suffered another loss on the Brexit vote as the House of Commons voted that the government would need to present a “plan b” within three days if the proposed Brexit deal failed to pass the meaningful vote on Tuesday evening. The Pound was unsettled by the outcome, but improved risk appetite and strong gains in oil prices help support Sterling.
Bank of England Governor Mark Carney reiterated that interest rate increases were likely to be gradual and limited, but the currency impact was limited. Overall, Sterling tested resistance at the 1.2800 mark against the Dollar but the Euro broke below the 1.1100 mark, reaching 1.1071 at the fix.
Overnight BRC Retail Sales printed a 0.7% year-on-year decline in December like-for-like retail sales. Economic worries contributed to the worst December performance in 10 years and reinforced concerns over subdued spending.
The US Dollar deepened its losses yesterday and dropped to a three-month low, helping the EURUSD pair finally break through a two-month-old trading range and surge past its high for the first time late September.
The initial leg of USD weakness was triggered by some dovish comments by several Federal Reserve (Fed) officials – St. Louis Fed President James Bullard, Chicago Fed President Charles Evans and Atlanta Fed President Raphael Bostic, which further aggravated after the latest Federal Open Market Committee meeting minutes revealed a dovish tilt.
The minutes of the Federal Reserve’s December meeting showed that some officials wanted the central bank to hold policy steady in December, even though they voted unanimously to raise interest rates by 25 bps to 2.25%-2.5%. Going forward, many officials agreed that the Fed could be patient with further policy firming and judged a relatively limited amount of additional tightening likely would be appropriate amid the recent rise in financial market volatility.
The key focus today will be on scheduled speeches by FOMC members, including the Fed Chair Jerome Powell, which should infuse a fresh bout of volatility across the FX market.
Yesterday was a good day for the Euro, with the Dollar continuing in its slide south. The single currency broke through the 1.1500 mark and settled around 1.1520. This is mainly due to data coming in on consensus in the EU but dovish comments coming out of the US.
Yesterday was a tough day for Theresa May and the Pound slid versus the Euro to below the 1.1100 level. Uncertainty over Brexit remains with all eyes on next Tuesday’s vote. Eurozone unemployment also fell to 7.9%, the lowest reading since October 2008 which helped the single currency.
Minor data out of France, Italy and the UK are overshadowed by the European Central Bank (ECB) Monetary Policy meeting accounts that are due out at 12:30. Most volatility, however, should come from later in the session when various members of the FOMC speak, with Powell kicking proceedings off at 17:00 UK time.
Data to watch:
00:01 GBP BRC Like-For-Like Retail Sales (YoY) (Dec)
01:30 CNY Consumer Price Index (MoM) (Dec)
01:30 CNY Producer Price Index (YoY) (Dec)
01:30 CNY Consumer Price Index (YoY) (Dec)
05:00 JPY Leading Economic Index (Nov)
05:00 JPY Coincident Index (Nov)
09:30 GBP BoE Credit Conditions Survey
12:30 EUR ECB Monetary Policy Meeting Accounts
13:30 USD Continuing Jobless Claims (Dec 28)
13:30 USD Initial Jobless Claims (Jan 4)
13:30 CAD New Housing Price Index (YoY) (Nov)
13:30 CAD New Housing Price Index (MoM) (Nov)
17:00 USD Fed’s Powell Speech
21:30 AUD AiG Performance of Construction Index (Dec)
21:45 NZD Building Permits s.a. (MoM) (Nov)
22:30 USD FOMC Member Clarida speech
23:30 JPY Overall Household Spending (YoY) (Nov)