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UK exports fall

UK exports fall

GBP

The Pound continued to benefit from firm global risk conditions and expectations of global reflation policies. CBI industrial orders declined to -38 for January, down from -25 previously and worse than forecast. Within the underlying data, business confidence dropped and there was a drop in export orders which is a significant concern as  global manufacturing was performing well.  Despite that, Sterling broke through the 1.3700 barrier against the Dollar and pushed to fresh 2.5yr highs just below 1.3750, but surrendered the gains as the Dollar fought back. The Euro dipped to 8-month lows around 1.1320 before a limited recovery to near 1.1286.

Overnight GfK consumer confidence fell to -28 in January, down from December’s -26 but just above forecasts. UK retail sales growth was limited to 0.3% in December following a 3.8% decline in November, and well below the forecasts 1.2%. Government borrowing was also higher than expected at £40.6bn for the month. 

By market open the Pound had dipped back below 1.3700 on the Dollar and the Euro traded at 1.1250 as weaker risk appetite held Sterling back. This morning’s PMI business confidence data will be scrutinised with a risk that trade disruption and the impact of stock building late last year will drag indices lower.

 

USD

US initial jobless claims declined slightly to 900,000 in the latest week from a downwardly-revised 926,000 previously and slightly below consensus forecasts of 910,000. Continuing claims declined to 5.05mn from 5.18mn. Despite a slight weekly retreat in claims, there were still concerns over near-term labour-market trends

The Philadelphia Federal Reserve (Fed) manufacturing index strengthened to 26.5 for January from 9.1 previously and above consensus forecasts of 11.0. There was a strong rate of increase in new and unfilled orders while all indicators posted solid gains on the month. There was also further optimism over the six-month outlook.

Construction data was also stronger than expected with an increase in housing starts increasing to 1.67mn from 1.58mn previously and the highest reading since August 2006.  The dollar edged higher following the data with a move back above 103.50 as bond yields increased, although overall moves were limited.

 

EUR

The ECB held interest rates at 0.0% following the latest council meeting, making no changes to the asset-purchase programme with bond buying under the PEPP programme continuing until at the least March 2022. The bank, however, did mention they were ready to recalibrate policy if a negative inflation shock arises over the next few months.

The single currency moved higher on the policy announcement as ECB President Laggard stated that the bank was also monitoring the fx rate very carefully and that currency appreciation is a drag on inflation. With regards to outlook, Laggard pointed out that risks are still tilted to the downside, although less pronounced now than ever before. She also added that an ambitious and coordinated fiscal stance remains critical.

Given the absence of dovish references within the meeting and a weak Dollar, the Euro strengthened to highs at 1.2170 with the Dollar securing a limited recovery towards the European close.

As of writing, the Euro currently trades just under the 1.2160 mark against its US counterpart. 

 

Data to watch

15:15 – EUR – French Flash Services PMI

15:15 – EUR – French Flash Manufacturing PMI

15:30 – EUR – German Flash Manufacturing PMI

15:30 – EUR – German Flash Services PMI

16:00 – EUR – Flash Manufacturing PMI

16:00 – EUR – Flash Services PMI

16:30 – GBP – Flash Manufacturing PMI

16:30 – GBP – Flash Services PMI

21:45 – USD – Flash Manufacturing PMI

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