Sterling held below 1.3000
Sterling continued to benefit from yesterday’s GDP data release in the absence of any further economic data of note. Ratings agency S&P estimated the coronavirus would likely trim UK GDP growth by 0.1-0.2% this year, but the Pound shrugged it off as global risk appetite remained firm. Despite a good start, Sterling failed to break resistance near 1.3000 against the Dollar and US strength meant it drifted lower once the US came online. The Euro suffered renewed selling pressure, testing 2020 lows of 1.1935.
Overnight UK RICS housing reported a sharp, forecast beating increase to 17% from a revised 0%. The highest reading since May 2017, a sharp improvement in market sentiment and showing a rebound in the London market. Sterling opens nearer 1.2950 on the Dollar this morning and 1.1915 on the Euro against a more fragile risk tone.
San Francisco Federal Reserve (Fed) President Daly stated that inflation targeting over a long period makes sense while the natural rate of employment is lower than we thought coming into the expansion. Fed Chair Powell stated that there is more upside to the labour participation rate which would also suggest that the central bank will be willing to let the labour market tighten further in the short term. Powell also commented that we will be able to see the impact of the coronavirus outbreak fairly soon.
The US dollar continued to draw net support from expectations that the US economy would continue to out-perform other major economies in the year ahead.
The Euro has dropped to 33-month lows against the Dollar on dovish ECB expectations. The pair are currently trading near 1.0880, the lowest level since May 2017.
Eurozone’s industrial output suffered its steepest drop in four years in December, the official data release yesterday showed further weakness in German manufacturing with factory orders falling by 2.1% in December. As a result, money markets are now pricing about six basis points of rate cut by the end of 2020.
All in all, the path of least resistance looks to be on the downside. The drop in the common currency may gather further pace should the US CPI, out today for January, beats estimates forcing markets to price out prospects of additional easing by the Federal Reserve. As of writing the Euro trades a 1.0880 against the Dollar.
Data to watch
10:00 – EUR – EU Economic Forecasts
13:30 – USD – CPI
13:30 – USD – Core CPI