Euro Zone Inflation Anticipated to Show Improvement
The New Year has the investors and traders plates filled with key economic releases across the globe as well as geopolitical developments and currency and stock market moves in China. Today, market focus will be on flash release of Euro zone consumer price inflation data due later in the day, with expectations that the headline inflation rate will climb further away from deflationary territory in December. In separate report, the trading session earlier today commenced with German jobs data as the unemployment rate for last month came in unchanged at 6.3%.
In the UK, the just out data revealed that the nation’s construction PMI stayed well in expansionary territory for December and better than the prior month’s result. Across the Atlantic, the economic calendar is devoid of significant macro updates.
Pound Sterling – UK Markets
The Pound has trimmed part of its earlier gains against the US Dollar this morning, despite the outcome of the UK’s construction sector for December. The just out data on Britain’s construction sector showed a healthy uptick in the industry activity for last month, more than what markets had anticipated but the Pound still struggled to maintain its recent gains against its major currency counterparts. As construction makes up for only a relatively minimal portion of the UK’s GDP, any reassurance from a stronger figure was very limited, especially ahead of the nation’s services PMI scheduled in tomorrow’s session. Investors will focus on tomorrow’s services activity data in the UK to see whether the sector, which accounts for a mammoth of activity in the nation, supported growth in the economy in the backdrop of slipping manufacturing output growth.
Sterling demonstrated further weakness against the US Dollar yesterday after the final UK manufacturing PMI fell short of forecast for December.
US Dollar – US Markets
The US Dollar is trading on a firmer footing against the shared currency, as the Euro has come under renewed pressure ahead of a key economic report in the Euro region in the form of latest inflation data. Meanwhile, in the US, the economic calendar is almost empty with the exception of a second-tier release of the monthly numbers of sales of autos and light trucks. Going forward, the minutes of the US Federal Reserve’s December 16-17 meeting scheduled tomorrow will be in focus, amid expectations of better insights into the FOMC’s plan of more rate rises in the future.
Yesterday, the greenback staged a strong recovery across the board, even after the Markit PMI and ISM measures reaffirmed that the US manufacturing sector had stumbled in the final quarter of the last year. The nation’s ISM manufacturing activity index dipped further into contraction from the month before, while the Markit’s PMI index for manufacturing was still above the neutral 50 mark for December, the revised data confirmed that the trend was decelerating for this indicator as well.
Euro – European Markets
The European economic calendar is data heavy for the second trading day of 2016, with Euro zone consumer price inflation data scheduled in the upcoming session. Markets anticipate that the Euro zone’s consumer price index rose in December from the previous month, though it is projected to still remain well below the European Central Bank’s (ECB) target of just below 2%. The report will follow Monday’s unexpected decline in flash December inflation reading from Germany, adding to downside risks to today’s update on Euro zone inflation. The dismal German CPI print highlights the ECB’s struggle to achieve its desired inflation target. In a recent attempt to boost inflation, the region’s central bank has vouched to extend its asset purchase programme by six months from an original deadline of the autumn of 2016 to the spring of 2017. In a short while, investors will also witness the release of Italy’s preliminary inflation print for December.
The renewed weakness around the shared currency has pushed the Euro– US Dollar currency pair below the 1.08 mark this morning. Earlier today, the German jobless rate came in steady at 6.3% for December.
Other Currencies – Highlights
The Aussie – US Dollar currency pair has currently given up its recovery momentum. In yesterday's trading session, the Australian Dollar slipped below the 0.72 mark against the greenback after the release of weak Chinese manufacturing numbers. The ongoing contraction in the Chinese manufacturing sector, which is Australia’s one of the major trading partners, is likely to have fuelled concerns about decreased demand in China for Australian exports. The slowing economic growth in China led by weakness in the manufacturing sector could hurt the Australian economy and weaken the demand for commodity-based Aussie Dollar. The pair had touched session highs earlier today.
Moving ahead, market participants will look forward to Australia’s AiG performance of services index data for December, scheduled to release later today. Also, traders of the currency pair will likely monitor the sentiment on the global equities for further direction.