Sterling Gains Continue
There were no significant UK data releases during the day as Sterling was unable to secure a breakout during the day. Overall risk appetite held firm which provided underlying support with an additional element of support from higher oil prices. Sterling failed to make a challenge on the 1.3750 area against the Dollar in early Europe and a correction was amplified by a generally stronger US Dollar, with a dip below the 1.3700 whilst against the Euro, falling to 1.1370, although UK selling pressure was contained amid expectations of a less dovish central bank stance.
There were renewed Sterling gains later in the session with a move higher to 1.3750 against the Dollar and picking up to 1.1415 against the Euro. There will be an element of caution ahead of Friday’s GDP data but before then, Bank of England Governor Bailey is due to deliver the Mansion House speech on Wednesday with markets watching the tone used for rhetoric surrounding the outlook.
The US employment trends index strengthened to 99.3 for January from 98.6 the previous month which had little underlying impact. The New York Federal Reserve (Fed) survey indicated that household spending growth expectations were the highest in five years which suggested that there was considerable pent-up demand which could trigger a sharp increase in spending, especially with a substantial fiscal boost
Markets continued to monitor any rhetoric over the US dollar policy under new Treasury Secretary Yellen amid speculation that there would be an underlying preference for a weaker US currency to help underpin the economy. Trends in the bond market were also important for currency market direction and US yields edged lower during the day which limited support for the US currency.
Cleveland Fed President Mester stated that the economy is in a slow recovery, but vaccinations could lead to a strong increase in activity. The House of Representatives debated threshold limits for individual payments within the fiscal stimulus with markets expecting s strong fiscal package.
There are no significant US data releases today, although there is likely to be some speculation over Wednesday’s CPI release given the increase in inflation commentary over the past few days.
The Euro-zone Sentix investor confidence index edged lower to -0.2 for February from 1.3 the previous month and below consensus forecasts of 1.9.
With the Euro continuing its move north against the Dollar, underlying concerns continue over the short-term Eurozone economic outlook. A decline however, in the German coronavirus cases have started to offer some hope with Chancellor Merkel stating that another two weeks of falling numbers would be needed to justify an easing of restrictions.
AS of writing, the Euro currently trades around the 1.2085 mark against its US counterpart.