What’s been happening?

Pound Sterling – UK Markets 

The pound sterling stayed virtually unchanged vs the dollar on Thursday and recovered modestly vs the euro. British Prime Minister Theresa May’s spokesman on Thursday said that the government was still determined to have everything in place to leave the EU on March 29 and explained that cancelling the Parliament’s February recess showed that the government was taking all the available steps to ensure that. The spokesman further announced that the PM will meet with lawmakers who proposed the Brexit compromise plan later on Thursday. Earlier in the day, Foreign Secretary Jeremy Hunt told reporters that putting together proposals on the Irish backstop would take some time and that they were not ruling out technical solutions to the backstop issue.

The only data released from the UK on Thursday, which was largely ignored by the market participants, showed house prices rose 0.3% in January following December’s 0.7% decline and came in slightly above the market expectation of 0.2%     

 US Dollar – US Markets

The US Dollar Index started the day under pressure as investors continued to price the FOMC’s dovish shift and fell to its lowest level in three weeks before staging a rebound in the second half of the day. However, the mixed macroeconomic data releases from the U.S. suggested that the greenback’s recovery was only a technical correction. The data published jointly by the U.S. Census Bureau and the Department of Housing and Urban Development revealed that new home sales rose 16.9% in November to beat the market expectation of 2.9% by a wide margin.

Meanwhile, the weekly initial jobless claims increased by 53,000 to 253,000 in the week ending January 25 and the ISM-Chicago’s PMI slumped to 56.7 in January from 65.4 in December and missed the analysts’ estimate of 61.5. “Contributing to the bulk of January’s downside was a drop in New Orders to a two year low. As a result of January’s weak order book strength, Production declined to a 10-month low. Firms noted an inability to absorb cost-push pressures as a reason for customers being deterred from placing orders in January,” the ISM Chicago explained.    

Euro – European Markets

The shared currency on Thursday weakened against its major rivals on uninspiring data and cautious comments from Jens Weidmann, President of the Deutsche Bundesbank and a board member of the ECB. “Contrary to our forecast from December, the dip in growth is likely to extend into the current year,” Weidmann said while speaking at an event in Frankfurt. “From today’s perspective, therefore, the German economy will probably grow well below the potential rate of 1.5 percent in 2019.” Commenting on the ECB’s monetary policy outlook, Weidmann argued that the normalisation process would be very slow and could take several years to complete. 

The Eurostat on Thursday announced that the GDP in the fourth quarter expanded by 0.2% and 1.2% on a quarterly and yearly basis, respectively. Additionally, the unemployment rate stayed unchanged at 7.9% in December to meet the market expectation. Moreover, according to Destatis, the unemployment rate also remained steady at 5% in Germany. On a negative, retail sales in Germany declined by 4.3% on a monthly basis in December following January’s 1.4% growth. 

Meanwhile, the GDP in Italy grew by 0.1% annually in Q4 and fell short of the experts’ estimate of 0.3%. Commenting on the data, Italy’s Deputy Prime Minister Luigi Di Maio argued that the GDP contraction showed the failure of previous governments and added that the government wouldn’t change its GDP forecast. Furthermore, PM Conte said that the economy would recover in 2019 and “hit full steam” in the second half of the year while explaining that the recession was temporary and due to the U.S. - China trade conflict.         

What’s coming up? 

UK: The IHS Markit will release the UK Manufacturing PMI data on Friday.

US: The NFP, which is expected to fall to 165K in January from December’s impressive 312K reading, will be published ahead of ISM-NY Business Conditions Index, ISM and IHS Markit Manufacturing PMI, and the UoM Consumer Confidence Index.

EU: The Eurostat will release the January inflation report on Friday. Analysts forecast the CPI to edged down to 1.4% on a yearly basis in January. The IHS Markit’s Manufacturing PMI from the eurozone and Germany will also be featured in the European economic docket.