Vaccine Optimism Battling Trade Difficulties
The Halifax house price index declined 0.3% for January with the year on year increase slowing to 5.4% from 6% previously, reinforcing expectations that the market is cooling.
BoE Deputy Governor Ben Broadbent has stated that the bank is still not more optimistic than 3 months ago with a view point of a steeper short-term downturn offset by a sharper recovery later in the year. He also reiterated the central bank would not be withdrawing any support until there are clear signs of sustainable recovery and inflation.
Overall Sterling confidence remained strong amid continued optimism over the vaccination programme, although there were still reservations over trade difficulties. The UK currency moved back above the 1.37 mark against the Dollar following a miss in the jobs data whilst against the Euro found support at the 1.1390. CFTC data also recorded a slight increase in favourable Sterling positions, although moves have remained limited recently.
The US dollar was little changed today as investors continued to react to the latest nonfarm payroll numbers. According to the Labor Department, the US added just 49,000 jobs in January while the unemployment rate dropped to 6.3%. The 49k increase was better than the previous month’s decrease of 140k. But it was lower than the expected increase of 50,000.
The data also means that the American economy still has millions of people out of work, increasing the probability of another stimulus package by the government. The data overall dampened confidence in the outlook, although markets were wary over potential distortions and there were expectations of recovery later this year.
Former Treasury Secretary Summers warned over the risk of higher inflation if the $1.9trn fiscal package went ahead, but there was a sharp rejection of these concerns by current Secretary Yellen who again warned that the bigger threat came from high unemployment. Given the increase in inflation focus, the latest consumer prices data is likely to be an important focus with markets watching trends in bond yields closely. US yields continued to push higher this moning with the 10-year yield at 11-month highs which provided underlying US dollar support.
The Euro rose during Friday’s trading session and printed a fresh daily high around the 1.2050 mark. The rise came on the back of a weaker Dollar across the board with the greenback correcting lower and extended losses after the release of the US employment report.
Despite rising on Friday, the single currency overall ended the week lower, posting its lowest close since November. The move off weekly lows could suggest some consolidation ahead before another leg lower or a recovery.
With this week’s economic calendar being extremely light, market sentiment will likely be the key with market participants looking at US yields, coronavirus data and fiscal stimulus negotiations for further impetus in market direction.