Sterling Strength Slows on Weaker Market Risk
The Pound drifted lower during Friday morning as a more cautious appetite curbed support and the better than forecasted November GDP data effect quickly subsided. The NIESR indicated that UK GDP grew by 1.9% in December as the English lockdown ended, just enough to produce 0.9% growth for Q4 2020 compared with market expectations of a slight contraction. NIESR still estimated a GDP contraction of 9.8% for 2020 overall and the GDP is forecast to decline 6.0% for January as new lockdown measures take effect. Weaker risk conditions weighed on Sterling after the US market opened and a firmer dollar contributed a dip to below the 1.3600 level while the Euro edged up from lows of 1.1275. Futures market data recorded an increase in bets on Sterling strengthening, from 4000 contracts previously to 13,000 last week, limiting scope for new buying support.
Weaker risk conditions persisted this morning, stifling support for the Pound. Sterling opens near 1.3560 to the Dollar and the Euro has strengthened to 1.1235.
US retail sales declined 0.7% for December compared with consensus forecasts of a 0.2% decline and there was a downward revision to the November data to a decline of 1.4% from the first estimate of 1.1%. Underlying sales also declined 1.4% on the month, much weaker than the expected decline of 0.1%, and the control group registered a decline of 1.9% following the 1.1% retreat for November. The sales data triggered fresh concerns over near-term demand conditions.
The New York Empire manufacturing index edged lower to 3.5 for January from 4.9 previously and slightly weaker than consensus forecasts, although there was a slightly faster rate of growth in new orders. There was a slightly slower rate of growth in employment with a stronger rate of growth in prices, Industrial production increased 1.6% for December, well above expectations of a 0.5% increase with little net impact.
The University of Michigan consumer confidence index retreated to 79.2 for January from 80.7 previously with a dip in current conditions and expectations while there was a significant increase in on-year inflation expectations to 3.0% from 2.5%.
The Euro remains depressed just over 1.2070 as we start a new trading week having dropped from multi-year highs as the US dollar continues on a front-foot. Cautious sentiment ahead of key events in Italy could be the main driver with little other impactful news on the horizon.
With Prime Minister Giuseppe Conte facing a confidence vote in the lower house today, Tuesday’s voting in the Senate can turn him down following the recent shock win from former ally Matteo Renzi.
Data to watch
14:30 – GBP – Boe Gov Bailey Speaks