Will the “least racist” person please stand up?
Dollar weakness dominated Friday morning with Sterling pushing to highs above 1.3600. With stronger-than-expected US CPI data, Sterling was resilient with little in the way of selling interest. Sterling also gained net support from confidence in the global economic outlook and high energy prices.
Late on Friday afternoon, rumours swirled that The Netherlands and Spain were looking for a softer Brexit deal. Sterling spiked and closed in on the 1.3700 mark against the Dollar, the strongest reading since the June 2016 EU referendum, while the Pound also regained some ground against the Euro.
Markets will monitor Bank of England comments today as the Pound tests resistance above 1.3750 against the Dollar, despite a slight retreat on news of Carillion’s liquidation.
US core retail sales increased 0.4% m/m in December with a rise of 5.4% y/y on Friday. Further, US CPI declined to 2.1% y/y in December which was in line with expectations, but core CPI rose to 1.8% y/y, which was unexpected. Expectations of a rate hike in March were increased to 72%, up from 50% the prior month.
The Dollar took a hit last week and traders were caught off guard as the data and sentiment surrounding the currency would inherently not justify a Dollar sell-off. Cable broke the 1.3700 mark to reach the highest level since the referendum and there was a similar story against the Euro as the 1.2200 barrier was passed. This is the highest level since before 2015.
The US market is closed today for Martin Luther King day, so there are no payments today, and a generally quiet week for the Dollar is scheduled.
Reports that the German CDU and SPD party had reached a breakthrough in coalition talks meant the Euro broke above the 2017 peak at 1.2090, and in turn, helped trigger fresh momentum buying to push the Euro to three-year highs around 1.2200.
Bundesbank head Weidmann stated that the chances of an imminent rate increase were low, although announcing an end date for bond purchases was justifiable and the Euro remained strong on tapering expectations.
Latest CFTC data recorded a fresh surge in net Euro, non-commercial long positions to a fresh record high, maintaining the risk of a sharp correction with markets also wary over the potential for dovish European Central Bank (ECB) rhetoric.
Data To Watch:
10:00 EUR Trade Balance n.s.a. (Nov)
10:00 EUR Trade Balance s.a. (Nov)