We all deserve a pay rise
Yesterday’s publication of the UK unemployment rate showed that it had fallen to its lowest rate in more than a decade: 5.1%, but wage growth without bonuses has slowed to 1.9%. This provides temporary relief to Sterling prices but the uncertainty surrounding the “Brexit” remains for now.
David Cameron is at the World Economic Forum in Davos and will attempt to garner support for a package of reforms he will present at the EU Summit on February 18 and 19th. Headway made in Davos will increase the chances of an EU renegotiation deal in February or March, which could result in an early June “Brexit” referendum. In the meantime a weak Pound should have a positive effect on our stubbornly low inflation as we are a net importer of goods, but this will take a while to filter through.
The “not so bad” UK data out yesterday versus weak US CPI and housing starts yesterday helped the Pound finally stabilise against the Dollar and is now trading in a 1.4120-1.4220 range. Jobless claims out today for the US will be watched, with expectations at 278K. Anything drastically below that will see the Dollar lose a bit more ground, but this is unlikely. EURUSD will now look for direction ahead of the European Central Bank (ECB) meeting later today.
US headline inflation declined by 0.1% in December and is up 0.7% year on year. Core inflation rose 0.1% month on month and 2.1% year on year. The drop in inflation is largely due, to the recent appreciation of the Dollar, making imported goods cheaper. This, and the ongoing decline in oil and commodity prices will continue to weigh on core goods prices throughout 2016.
This afternoon the ECB monetary policy announcement is in the spotlight. The central bank’s policy is expected remain unchanged for now. Disappointing CPI figures for December are likely to mean that Draghi will have to field questions about stimulus expansion at the press conference following the officials’ meeting. Any suggestions that greater easing is likely in the near-term may breathe new life into risky assets, sending the higher-yielding currencies upward whilst weakening the Euro. An indication of a lack of urgency in offering further loosening is likely to trigger the opposite and see the Euro strengthen further.
There is no major US or UK Data out today.
Data to watch: 12.45 ECB Interest Rate Decision. 13.30 ECB Monetary policy statement. 13.30 US Initial Jobless Claims.
If you’re looking to buy or sell Euro now or in the near future, you’ll want to watch our broker Dylan’s interview with Swiss forex bank Dukascopy on the future of GBP/EUR.