Sterling processing from EU Brexit talks
A currency market update from Charles Purdy, director of Smart Currency Exchange.
Sterling struggled on Friday, despite confirmation that retail sales in the UK jumped by 2.3% in January, more than three times the forecasted increase. Sterling did look to be extending recent losses throughout Friday, before investor sentiment turned back into the UK currency’s favour late afternoon. However once there was an announcement of a deal in Brussels sterling rapidly lost ground.
A quiet week lies ahead for sterling on the economic data front, with little in the way of influential data slated for release. Thursday will see the only real figure of note, as the second estimate of quarterly economic growth is released. Following an initial estimate of 0.5% growth, this is expected to remain unchanged in the revised figures.
With the prospect of a referendum on EU membership causing significant uncertainty in the markets, any news that could influence this decision is likely to carry significant weight.
Inflation to the fore in Germany
The euro had a quiet end to a mixed week on Friday. In the morning, it continued its trend of the week against the US dollar by weakening against the US currency, but the majority of these losses were erased in the afternoon session. The sentiment on the single currency remained unchanged after the minutes of the European Central Bank (ECB)’s January meeting – which was released on Thursday – had showed signs that the central bank is prepared to increase monetary easing next month if necessary to bolster growth. The only significant data was in the form of consumer confidence figures, which came out much worse than expected at -8.8, despite being forecast at -6.7.
This week is expected to be a busier week for the single currency. The main releases will be Germany growth data on Tuesday, which is to remain at 0.3% for last quarter. On Thursday the Consumer Price Index (CPI) for the Eurozone is out and expected to increase slightly from last year’s figure from 0.2 up to 0.4%. Given that the CPI is a measure of inflation, Euro investors will be keeping a particularly close eye on this data set, as inflation is currently a global concern.
Will the US achieve better economic data?
We experienced additional US dollar movement on Friday, mainly dictated by sterling in the morning as well as the positive US Consumer Price Index (CPI) figures in the afternoon, the latter an indicator of inflation.
This week looks set to be busier as it progresses, with minimal data releases on Monday and Tuesday, and a small decrease in consumer confidence expected on Tuesday. Durable Goods Orders and the weekly unemployment claims are due for release on Thursday, with both expecting to post better-than-expected figures.
Investors will be keeping a keen eye on Friday however, with preliminary growth figures, as well as figures on Personal Spending and Personal Income. The latter two are both expected to have improved from the previous month’s figures, with Personal Spending due to fall more in line with income. However, given the recent spate of discouraging news from the US, any disappointments in data levels could potentially cause the US dollar to weaken.
Switzerland’s eye on the Eurozone
This week looks set to be quiet week this one on the data front. On Tuesday the chairman of the Swiss National Bank will be speaking about events in the Eurozone and their effects on Switzerland.
Other than that, we have private capital expenditure data from Australia on Thursday. It has missed expectations for the whole of last year, so investor will be hopeful the new year will bring with it new fortunes.