UK Retail Sales Drop in December
Data that was published just now indicated that Britain’s retail turnover growth slowed towards the end of 2015, as a warmer than usual winter dampened demand last month. Across the Atlantic, market participants will eye manufacturing PMI and existing home sales data, scheduled for release later in the day, for further direction.
Today, the Euro continues to remain exposed to further weakness against the major currencies as expectations mount around the European Central Bank (ECB) taking policy action in March. Speaking at the World Economic Forum in Davos, Switzerland, the ECB President stated that the Governing Council was determined to act and deploy its instruments to boost inflation. On the macroeconomic front, earlier today, data indicated that the Euro zone’s private sector slowed more than expected in January, as growth in both manufacturing and services sectors eased.
Pound Sterling – UK Markets
The Pound is seen extending gains for the second day in a row against the Euro this morning as it tries to bounce back from the lowest level reached in the year. Sterling reversed most of its gains against the common currency after the ECB Chief, Mario Draghi, signaled that the central bank would review its current monetary policy stance at its next March gathering, in the wake of the recent turmoil in financial markets and a slide in commodity prices. The announcement weighed on the Euro against the greenback yesterday.
In economic news, the just out UK retail sales slowed the most in more than a year in December. The decline in retail sales was larger than expected as warm weather weighed on last month’s clothing sales and weakened demand. Including fuel, the volume of retail sales growth had the biggest drop since September 2014. However, data had little impact on trading in the Pound against the majors. Separately, UK’s public sector net borrowing data brought in good news to Chancellor George Osborne after the financial deficit narrowed more than expected in December.
US Dollar – US Markets
The US Dollar is trading on a stronger footing against the Euro and the Japanese Yen this morning, as heightened prospects of further monetary easing in the Euro zone and Japan dampened demand for their domestic currencies and buoyed the greenback. Looking ahead to today’s US economic updates, investor focus will be on Markit’s preliminary manufacturing PMI data in the US which is expected to show a slight decline in the nation’s manufacturing activity for January. This release follows the dismal reading on the NY Empire State manufacturing index which sharply fell for January and yesterday’s Philadelphia Fed’s survey which indicated that the region’s manufacturing activity continued to contract for January, albeit at a slower than expected pace. Separately, traders will eye today’s existing home sales data for further evidence to gauge the health of the US residential sector.
Yesterday, data showed that the number of individuals applying for first-time unemployment benefits in the US unexpectedly rose last week, suggesting that the US labour market lost some momentum entering into the New Year.
Euro – European Markets
Yesterday, the ECB left its benchmark interest rate and deposit rate unchanged at its monetary policy meeting. The initial market reaction to the interest rate decision was lame, but the unexpected dovish tone at the President Mario Draghi’s press conference coerced the Euro sharply lower against its key peers. The ECB Chief defended the current policy measures as appropriate and effective, but also highlighted the increased downside risks to the economic outlook since the previous meeting. He hinted at the need to review and possibly reconsider the monetary policy stance at the next meeting in early March.
Moving ahead, a string of flash PMI indices from the Euro zone and its two biggest economies, released earlier in the day, brought in further evidence that the European recovery continues, albeit at a subdued pace. Today, preliminary PMI data showed that the Euro zone’s factory and services sector activity expanded at a slower than expected pace in January. But overall the private sector survey data was consistent with the Euro zone growing at a steady quarterly rate of 0.3% to 0.4% at the start of the year.
Other Currencies – Highlights
The Canadian Dollar has managed to regain some of its lost footing against the US Dollar at the final session of the week, amid strong recovery in crude oil prices. In the session ahead, direction in the Loonie will primarily be driven by oil prices.
Also, a few major economic releases in Canada in the form of consumer price inflation (CPI) and retail sales will be in the limelight along with flash manufacturing PMI data and existing home sales numbers in the US. The Bank of Canada (BoC), in its monetary policy meeting earlier in the week, had kept its benchmark interest rate unchanged stating that inflation in Canada is evolving broadly as expected, with CPI already near the bank’s lower end of target range. A pickup in Canada’s CPI data today might fuel a much stronger rally in the Canadian Dollar against the greenback as it encourages the BoC to retain a wait-and-see approach in 2016. However, the recent slump in commodity prices could have an impact on today’s inflation data.