Strong Monthly Start For Sterling
The Pound’s trading was heavily influenced by month end position adjustments on Friday, dropping initially to lows near 1.3650 against the Dollar before breaking above the 1.3700 mark later on. Vaccine related optimism remained strong and supported the Pound but the EU’s vaccine misstep tended took some of the shine off and there were still concerns for the UK’s economic outlook in the short term.
Future’s market data revealed fall in bets on Sterling strengthening, suggesting that institutional trading is not responsible for the recent rise and there will be the potential for near-term backing. After the European market closed, risk appetite deteriorated and the Pound dipped below 1.3700 again.
This morning the Pound opens higher still, 1.3750 against the Dollar 1.1330 against the Euro. The main data point this week will be Thursday’s Bank of England policy decision with expectations of negative interest rate commentary.
US December personal income increased 0.6% following a 1.3% decline previously, although there was a 0.2% decline in spending, the second successive reduction.
The Chicago PMI index strengthened to 63.8 for January from 58.7 the previous month and above consensus forecasts of 58.4 and the highest reading since July 2018 as order backlogs also increased to 23-month high. The data releases overall had little impact with the US dollar tending to lose ground and the Euro advanced to highs near 1.2150.
The US currency stalled as US equities started to lose ground and uncertainty remained high. President Biden warned that the cost of inaction on fiscal stimulus is growing every day. Biden is due to meet with an important group of Republican Senators after Monday’s New York close with rhetoric monitored closely amid Republican pressure for the stimulus plans to be pared back.
Spain reported a GDP increase of 0.4% for the fourth quarter of 2020 following a 16.4% advance the previous quarter and compared with consensus forecasts of a 1.5% decline, although there was still an annual contraction of 9.1%. The French contraction was also less severe than expected for the quarter while Germany managed to register 0.1% growth. Germany also reported a 41,000 decline in unemployment for January after a 40,000 fall the previous month. Additionally, Euro-zone M3 money supply growth strengthened to 12.3% in the year to December from 11.0% previously, although private-sector loan growth was held to 3.1%.
With concerns still prevalent over a potential ECB verbal intervention, futures markets suggested that the potential for an interest rate cut had declined with some ECB officials downplaying any benefits which limited fresh selling in the single currency selling.
As of writing, the Euro currently trades around the 1.2125 mark against its US counterpart.
Data to watch
04:30 – GBP – Final Manufacturing PMI
10:00 – USD – ISM Manufacturing PMI