Euro hawks encouraged
Weak retail demand initially unsettled Sterling after the latest retail sector trading updates. Concerns surrounding weak consumer spending trends were upheld after the Bank of England credit conditions survey reported generally weak loan demand.
Former UKIP leader Nigel Farage stirred Brexit uncertainty after commenting on the possibility of a second referendum, although the idea was dismissed by those in authority and had little market impact, it does mean a few more Brexit-news days.
Sterling dipped to lows near 1.3450 against the Dollar before reversing to flirt with 1.3550 after the Dollar came under pressure. Sterling also gained support from a fresh advance in oil prices with Brent touching three-year highs of $70 p/b before dipping lower while the Euro advanced to highs above 1.1235 before closing just below this level.
US core Producer Price Index excluding food and energy fell 0.1% m/m while decelerating to 2.3% y/y for December. Both readings were below consensus forecasts and dampened hopes of rising inflation. US weekly jobless claims rose above expectations to reach 261K for the week from 250K previously.
The Dollar was sent weaker on the release of PPI data, against the Euro the 1.2000 barrier was broken once more. Further, New York Fed’s Dudley attacked Trump’s tax plan as he believes this to be a short-term relief for the US economy with much greater risks looming. Dudley expects the economy to rise as much as 2.5%-2.75% on the back of the tax stimulus with inflation also rising.
Important data releases today include Retail Sales and Consumer Price Index; forecasts predict a drop in sales growth m/m to 0.4% from 0.8% and a drop in Core CPI to 2.1%.
The European Central Bank’s (ECB) December monetary policy minutes revealed that forward guidance and language on their current stance could be re-visited in early 2018. Also, the council was confident that inflationary pressures would take effect and that downward pressure on core inflation was due to temporary factors.
References to a (gradual) shift in forward guidance were seen as relatively hawkish and triggered a fresh increase in German bond yields with benchmark 10-year yields above 0.50%. Higher yields provided firm Euro support and a move back to just above 1.2000 against the Dollar from lows near 1.1930 as the single currency advanced on all the main crosses.
Data To Watch:
07:45 EUR Consumer Price Index (EU norm) (YoY) (Dec)
13:30 USD Retail Sales ex Autos (MoM) (Dec)
13:30 USD Retail Sales control group (Dec)
13:30 USD Retail Sales (MoM) (Dec)
13:30 USD Consumer Price Index Ex Food & Energy (MoM) (YoY) (Dec)
13:30 USD Consumer Price Index Ex Food & Energy (YoY) (Dec)
13:30 USD Consumer Price Index (YoY) (Dec)
13:30 USD Consumer Price Index (MoM) (Dec)
16:30 EUR German Buba President Weidmann speech
18:00 USD Baker Hughes US Oil Rig Count
21:15 USD Federal Reserve Bank of Boston President Rosengren Speech