Is this the calm before the storm?
With no top tier data from the UK yesterday, the Pound was left at the mercy of the markets which didn’t bode too well, and resulted in Sterling softening by around 0.6% over the course of yesterday afternoon.
One of the reasons for the losses came via Sterling’s response to a warning from the International Monetary Fund’s (IMF) Christine Lagarde. The IMF chief went on record to voice her concerns regarding the potential negative impact of a British exit from the Eurozone. This was followed by comments from Standard & Poor’s who said that they would downgrade the status of the UK government debt forecasts from “stable” to “negative”. This would be in the event of a British exit from the EU.
Today we have a host of data from the UK and it is expected that particular attention will be paid to the inflation results, due at 09:30am. The headline figure has dropped, now at 0.1% month on month – many feel that a better than expected monthly figure could excite some of the Sterling bulls. However, any rally could be short lived as a result of diminishing oil prices.
A data light start to the week has seen choppy price action in FX markets, with Asia and European hours seeing strength in USD to weigh against major pairs, before EUR clawed back losses after the Wall St. open.
The Eurozone’s Industrial Production is the only data for release today, but with several European Central Bank (ECB) policymakers making public appearances today there is a high possibility that they will try and capitalize on that and “talk down” the value of the Euro. EUR/USD broke back above the 1.1000 level ahead of the European close, with the USD ending European hours in negative territory. Despite EUR seeing late gains against the USD, GBP closed out the European session significantly softer against the Greenback, with the Bank of England’s (BoE) Shafik stating that she will not vote for a rate-hike until there is sustained wage growth.
This comes ahead of a busy week in terms of UK data, as CPI, unemployment and retail sales data are all scheduled for release later in the week.
Data to watch: 9.30am UK Retail Price Index year-on-year (YoY) & month-on-month (MoM) (Nov), Producer Price Index – Output YoY & MoM n.s.a (Nov), Producer Price Index – Input YoY & MoM n.s.a (Nov), PPI Core Output YoY & MoM n.s.a (Nov), Consumer Price Index YoY & MoM (Nov), Core Consumer Price Index YoY (Nov). 10am German ZEW Survey – Current Situation & Economic Situation (Dec), Eur ZEW Survey – Economic Sentiment (Dec). 1.30pm US Consumer Price Index YoY & MoM & excluding Food & Energy.