Lockdown roadmap to start next week
The boost given by UK inflation data ebbed as the Bank of England is not expected to make any policy changes in the near term. Optimism continues over the UK vaccine programme with Boris Johnson stating the roadmap to lockdown easing would be announced on Monday. He added that the cautious and science-led approach would involve stages and be irreversible. Sterling continued to gain support from firm risk appetite, especially with further strength in oil prices.
The Pound dipped to lows around 1.3830 against a stronger Dollar, but the Euro dipped to 9-month lows of 1.1520 as the UK currency was still seen as under-valued in the medium term. Friday’s business confidence data are the next Sterling focus, especially with the impact of the end of the transitional period and start of Brexit proper.
The Pound opens slightly lower this morning, near 1.3850 to the Dollar and close to 1.1494 against the Euro.
US retail sales jumped 5.3% for January after a revised 0.7% decline the previous month and substantially above consensus forecasts of 1.1%. Underlying sales increased 5.9% on the month following a 1.8% decline previously while the control group recorded a sharp 6.0% monthly gain.
Producer prices (PPI) data was also much stronger than expected with a 1.3% January increase after a 0.3% gain the previous month. Core prices increased 1.2% on the month with a 2.0% annual increase from 1.2% previously and above expectations of 1.1%.
The retail sales data boosted confidence in the US growth outlook, especially with a decline in coronavirus infection rates. The PPI data also increased concerns over an underlying increase in inflation pressures. This combination provided further dollar support.
Minutes from January’s Federal Reserve (Fed) meeting noted that the economic outlook had improved considerably from December’s meeting. The committee reiterated that the accommodative monetary stance would continue until the Fed goals had been achieved. Many officials expressed the need to distinguish between one-time price trends and underlying inflation trends, although several participants saw upside risks to inflation from supply constraints.
The Euro continues to look south against the Dollar as markets still fret over the negative impact of coronavirus lockdown restrictions on the Eurozone’s economy. With many countries in the Eurozone, including Germany still abiding by a strict lockdown,the slow vaccine rollout is pushing sentiment to be extremely weak. The evidence being a drop in the single currency yesterday on the back of stronger ZEW survey data. Investors could still sell Euros ahead of Friday’s PMI numbers, pricing in the possibility of the data missing estimates in a sign of renewed economic weakness.
As of writing, the Euro currently trades around the 1.2045 mark against its US counterpart.
Data to watch
08:30 – USD – Philly Fed Manufacturing Index
11:00 – USD – Crude Oil Investments