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Inflationary fears still holding Sterling back

Inflationary fears still holding Sterling back

GBP
The Services PMI marginally outperformed expectations, nudging up to 54.2 in December from November’s 53.8. The new orders component fell to a 16-month low while upward pressure on input prices accelerated which can only fuel the debate within the Bank of England Monetary Policy Committee.

Consumer credit data showed solid expansion and mortgage approvals printed slightly above consensus forecasts. Sterling gained modest support on the data but also benefited from high energy prices and optimism surrounding the global growth outlook.

There was, however, selling interest above 1.3550 against the Dollar while the Euro strengthened to move past the 1.1235 level. Overnight, the BRC Shop Price Index recorded a 0.6% decline in the year to December and a decline in car sales, although Sterling held steady with the Euro back above the 1.1235 level.

USD

The Dollar failed to hold onto the gains seen yesterday despite data showing 255,000 jobs being added in December according to private payrolls company ADP.

Today, we see the official US jobs data for December with consensus expectations pointing to a likely continuation of the strong job creation that prevailed through much of last year. Around 190,000 non-farm jobs are expected to have been added to the US economy in December following a better-than-expected showing of 228,000 jobs added in November. Given Thursday’s strong ADP jobs report, Friday’s official non-farm payrolls could potentially surpass expectations once again.

In the run-up to today’s jobs release, the US Dollar has mostly been selling off sharply since mid-December, due in part to doubts as to whether the US Federal Reserve (Fed) can keep up with its most recent outlook for three interest rate hikes in 2018, given ongoing concerns over lagging inflation. The Fed minutes were also largely encouraging about their expectations for the economy, but the Dollar appears to be victim to the surge in global optimism that causes investors to take more risks and seek opportunities outside of the US.

EUR

Final Eurozone PMI services index showed a firm reading yesterday, increasing slightly to 56.6 from 56.5 the previous month. Markit PMI Composite also showed a strong reading of 58.1, demonstrating a secure manufacturing and services sector of the Eurozone. Confidence in the Eurozone growth outlook remains positive going into 2018 with strong economic data and a shift in monetary policy that will underpin the single currency.

Further, German Chancellor Merkel’s conservatives and Social Democrats have agreed to talks with regards to the possibility of a government from Jan 7th as parties say confidence has risen.

Consumer price index and producer price index data are out today whereby European Central Bank (ECB) optimists will hope for a continued run of positive data to fuel the monetary policy stance.

Data To Watch:
07:00 EUR Retail Sales (YoY) (MoM) (Nov)
07:45 EUR Consumer Price Index (EU norm) (YoY) (Dec)
n/a EUR Unemployment (Nov)
10:00 EUR Consumer Price Index – Core (YoY) (Dec)
10:00 EUR Consumer Price Index (YoY) (Dec)
10:00 EUR Producer Price Index (YoY) (Nov)
13:30 USD Labor Force Participation Rate (Dec)
13:30 USD Unemployment Rate (Dec)
13:30 USD Average Hourly Earnings (YoY) (Dec)
13:30 USD Average Weekly Hours (Dec)
13:30 USD Nonfarm Payrolls (Dec)
13:30 USD Trade Balance (Nov)
15:00 USD ISM Non-Manufacturing PMI (Dec)
15:00 USD Factory Orders (MoM) (Nov)
15:15 USD FOMC Member Harker Speech
17:30 USD FOMC Member Mester speech
18:00 USD Baker Hughes US Oil Rig Count
19:30 GBP MPC Member Haldane Speech

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