Stronger Sentiment Keeping Sterling Firm
Yesterday the Office for National Statistics estimated that as much as 17% of the UK labour force was on furlough in week three of January, a peak since last July. The data raised fresh concerns for potential consumer spending and on government borrowing. The Pound benefited from a sharp recovery in risk appetite during the day, especially as Wall Street registered gains and interest in buying Sterling dips from international investors. Sterling moved back above 1.3700 against a weaker Dollar, peaking near 1.3750 and the Euro retreated from 1.1290 to near 1.1325 by close of play.
The Novavax vaccine had strong phase-3 trials with efficacy of close to 90% and was effective against the UK variant, although a separate trial in South Africa suggested the vaccine was less effective against the South Africa mutation. Markets are cautious of month-end position adjustment today and Sterling has been hampered by a fresh bout of risk aversion today. The UK currency opens near 1.3700 on the Dollar and the Euro around 1.1300.
According to the advance reading, US GDP increased at an annual rate of 4.0% for the fourth quarter of 2020 which was in line with consensus forecasts and followed the record surge of 33.4% for the previous quarter. Consumer spending increased 2.5% for the quarter while there was a strong recovery in investment.
Initial jobless claims declined to 847,000 in the latest week from a revised 914,000 the previous month and below expectations of 875,000. Continuing claims declined to 4.77mn from 4.97mn previously, although overall claims increased sharply in the latest reporting week with the number claiming pandemic assistance jumping by 2.4mn on the week which illustrated underlying vulnerability in the labour market. Short-term economic reservations continued given vulnerability in services.
The goods trade balance declined to $82.5bn from $85.5bn the previous month while new home sales increased to 842,000 from a downwardly-revised 829,000.
The dollar gained fresh demand this morning as risk appetite dipped again and commodity currencies retreated once again.
Euro-zone January industrial sentiment recovered slightly to -5.9 from -6.8 previously while there was a limited weakening within the services sector. German consumer prices increased 0.8% for January with the year-on-year rate at 1.0% from -0.3% with the rate pushed significantly higher by the ending of a temporary VAT cut.
The Euro saw a gradual grind higher throughout trading yesterday, with the gains accelerating shortly before the US open amid an extension of US dollar weakness. The pair now trades just above the 1.2100, up from lows around 1.2080. But short from highs of 1.2140.