Pound Sterling Extends Rebound Ahead of Key Events
What’s been happening?
Pound Sterling – UK Markets
The British pound added more than 0.3% on a daily basis vs the dollar on Monday to recover all of the losses that it recorded during the flash-crash witnessed in FX markets on January 2nd while extending its gains against the euro as well. However, it’s still unclear how long this rebound would last as markets are waiting for the BoE’s monetary policy decision on Wednesday and the start of the next round of Brexit talks in the Parliament on Thursday.
According to a recent poll conducted by YouGov, 46% of Britons would vote to stay in the EU if a new referendum were held today vs 39% who would vote to leave. “When the undecided and those who refused to answer were removed from the sample, the split was 54-46 in favour of remaining,” YouGov said. Meanwhile, the European Commission spokesman Margaritis Schinas announced that British Prime Minister Theresa May and the EU’s chief Brexit negotiator Juncker have agreed to talk again later this week. The spokesman further reiterated that the Brexit deal on the table was the only possible deal that the EU would offer. On other Brexit-related headlines, Junior Brexit Minister Robin Walker told reporters he was hopeful that PM May’s deal will be approved by the Parliament next week.
US Dollar – US Markets
The dollar underperformed on Monday amid disappointing data and more dovish comments from Atlanta Fed President Raphael Bostic. The ISM reported that the Non-Manufacturing PMI in December fell to 57.6 from 60.7 in November to post its third straight decline and fell short of the market expectation of 59. The non-manufacturing sector’s growth rate cooled off in December. Respondents indicate that there still is concern about tariffs, despite the hold on increases by the U.S. and China,” Anthony Nieves, Chair of the Institute for Supply Management (ISM) Non-Manufacturing Business Survey Committee, said.
While speaking at an event at the Rotary Club of Atlanta, Bostic argued that one rate hike in 2019 would be appropriate in the current state of the markets. “The clouds, the nervousness, has gotten me to a place where I want to make sure that we do not act too aggressively,” Bostic stated.
Euro – European Markets
The broad-based selling pressure surrounding the greenback allowed the shared currency to find some demand on Monday despite a mixed-bag of macroeconomic data releases from the euro area.
The monthly report published by the Destatis on Monday showed that retail sales in Germany increased by 1.4% on a monthly basis in November following October’s 0.3% contraction and surpassed the analysts’ estimate of 0.3%. However, a separate report revealed that German factory orders declined by 1% in the same period. Additionally, the Eurostat reported that retail sales in November rose by 0.6% to match October’s revised reading. Finally, the Sentix GmbH reported that the investor confidence in the eurozone deteriorated for the fifth straight month in January with the headline index falling to -1.5 from -0.3 in December. “What is worrying about the current loss of momentum is the policy's unwillingness to react, which is obviously unaware of the possible implications. Investors do not expect a quick reaction from the central banks either,” the publication read.
What’s coming up?
UK: Halifax House Prices will be the only data featured from the UK on Tuesday.
US: JOLTS Job Openings, NFIB Business Optimism Index, trade balance, and consumer credit change data from the U.S. will be watched closely by market participants.
EU: The European Commission will release the latest sentiment report on Tuesday, which will include industrial confidence, business climate, economic sentiment indicator, consumer confidence, and service sentiment figures.