Morning Comment 21.01.22
Despite trading close to 1.15 last week, Euro/Dollar has dropped back into its recent range and is trading closer to 1.13 heading into the weekend. The Dollar has gained ground as equity weakness extended last evening and markets are also closely watching events in Geneva today where US diplomats will meet with Russian officials on the topic of increasing tensions around Ukraine see the ‘Caught the Eye’ section for more. Yesterday saw European CPI come in as expected at 5% YoY while Eurozone Consumer Confidence is the only release of note this afternoon.
Sterling has maintained its recent strength and remains stable despite the political pressure on UK Prime Minister Boris Johnson this week; On the domestic data front, this morning’s Retail Sales numbers missed expectations while last months figures were also revised lower; economic data in the UK has been relatively strong in recent months and currently markets expect the Bank of England to raise interest rates again in the coming months following the move in December. Monday morning will see the latest UK PMI numbers which will be the main release for next week.
The Dollar has rebounded in recent sessions as a combination of higher interest rates, lower stock markets and geopolitical concerns have boosted the US currency. It has been a relatively quiet week on the US data front however the main event for next week will the first Federal Reserve Meeting of the year and currency markets will be squarely focused on the messaging around interest rate increases and any signals of a reduction in the balance sheet during the year ahead. Today sees the US Leading Indicator while next week also includes US GDP and the latest PMIs.Tel: 1800 30 30 03 / +353 (0)1 790 0000
19 Jan 2022
Morning Comment 19.01.22
The Euro came under pressure yesterday, falling sharply against the both Sterling and the Dollar, with Euro/Dollar breaking back below resistance turned support at 1.1380. There were no Euro-specific headlines to drive the move down however European interest rates have lagged the increasing yields, and expectations, in the UK and the US markets. Earlier in the day, German ZEW Survey Expectations were significantly better than expected coming in at 51.7 versus the 32.0 forecast. This morning’s German CPI numbers came in as expected – above 5% – while later this morning will see the release of the latest Irish CPI figures.
The Pound had a mixed day yesterday, falling against the Dollar but rallying strongly against the single currency. Despite a move higher in Euro/Sterling for most of the morning, the pair is now trading back towards 83p and close to the recent lows. Yesterday’s UK employment figures showed a further drop in the Unemployment Rate to 4.1% while Average Weekly Earnings remained strong; earlier today the latest UK CPI numbers showed inflation at 5.4% while RPI was even higher at 7.5% YoY. The other major release in the UK this week comes on Friday morning with the latest Retail Sales numbers.
The Dollar bounced back further yesterday and is one of the top performing currencies this week after coming under selling pressure for most of last week. US interest rates continue to push higher as market remain focused on the US Federal Reserve’s policy decisions in the coming months, including ongoing speculation of a 50 basis point rate hike this year, while US 10yr interest rates are now back to pre-pandemic levels. Equities came under pressure with the S&P trading below its 100 day Moving Average for the first time since October while tensions between the US and Russia remain ahead of talks between senior officials later on this week.
17 Jan 2022
Morning Comment 17.01.22
The single currency broke out of its recent trading range against the Dollar earlier this week following the latest US CPI figure; Euro/Dollar traded above previous resistance at 1.1380 and is trading close to 1.15 following a sharp rally. Yesterday ECB Board Member De Guindos suggested that perhaps inflation won’t be as transitory as previously forecast while some market analysts have brought forward their expectations for ECB rate hikes in 2023. This morning saw the latest regional CPI figures from Spain while next week will see German and Irish numbers as well as German ZEW.
Sterling has also gained ground against the Dollar but has been stable against the Euro, consolidating its recent gains below 84p. On the Brexit front, the UK’s Liz Truss hosted the EU’s Maros Sefcovic at her home in Kent as the new negotiators begin to build a working relationship. Earlier this morning, MoM Industrial and Manufacturing Production numbers beat expectations although the YoY were marginally lower; the focus for next week on the domestic front will be the latest UK employment numbers as well as UK inflation which is expected to climb to 5.4% YoY.
The US currency has been the worst performing major currency so far this week; losing ground against G10 and Emerging Market currencies while the Dollar Index is over 1% lower on the week and 2.5% off its recent highs from last month. Overnight reports suggest President Biden will nominate new governors for the Federal Reserve – see more in the ‘Caught the Eye’ section – while today will see the release of the latest US Retail Sales figures as well as Industrial Production and University of Michigan Sentiment and Inflation numbers later this afternoon.
15 Dec 2021
Morning Comment 15.12.21
It has been a quiet start to the week for Euro Area markets, with the ECB meeting this Thursday the key focus. At the meeting, upward revisions are expected to inflation forecasts for 2022 and 2023 with a first look at 2024 inflation, however sources have indicated that the inflation projection for both 2023 and 2024 will be below the 2% goal. Lagarde may also give some guidance on the plan for purchases post the end of PEPP however expectations for clarity have been dialled back given the increase in Covid-19 cases across the Euro Area in recent week. Euro/Dollar has traded a 1.5% range between 1.1180 and 1.1380 over the last month – 1.1180 remains the key support – any surprise from the FOMC tonight (see USD section) could see the range tested.
This morning, UK CPI for November showed prices rose 5.1% on the year versus expectations of a 4.8% increase. Price pressures are currently broad-based with 9 of the 13 sub categories reporting increases led by transport, clothing and footwear, and food prices. At the Bank of England meeting in November, the updated inflation report showed inflation peaking at around 5% in Q1. The MPC meet this Thursday where there is a 50/50 chance of a 15bp hike – earlier in the week we had strong employment data, while on the flip side, it is yet to be seen what kind of economic threat Omicron present. Euro/Sterling dropped below 85p post the CPI, while Sterling/Dollar moved back above 1.3250.
The Federal Reserve meet this evening where expectations are for a doubling of the pace of the taper to $30bn/pm, putting the committee on track to finish asset purchases by March. The acceleration in the pace of taper opens the door to a hike as early as March, although expectations are for May. The FOMC will update their full set of economic forecasts including the dot plot which indicate where the committee see interest rates over the next three years. The Dollar sits close to the recent highs; any indication of a delay in decision making due to the new variant would see the Dollar underperform.
8 Dec 2021
Morning Comment 08.12.21
This morning, ECB Vice President de Guindos noted that “higher inflation may last longer than expected”, and that he “does not think the new variant will derail the recovery in the Euro-Area”. Schnabel speaks this afternoon before the black-out period begins for ECB speakers ahead of the December policy meeting next week – expectations for any major announcements have been tempered in recent weeks; the PEPP programme is due to end next March. Euro/Dollar trades just below 1.13; 1.1180 is the support to watch.
UK markets had a quiet start to the week, the notable outperformer was the FTSE which added over 1.5% yesterday as global risk sentiment recovered on the back of more positive news on the Omicron Variant. Boris Johnson is under fire as aides his were caught on camera joking about a Number 10 party last Christmas which was against official government guidance. Euro/Sterling is a touch higher to 0.852 overnight.
It has been a quiet start to the week for the Dollar, flat versus the Euro but losing ground versus commodity currencies given the bounce in global risk appetite. The main event of the week comes tomorrow in the shape of US CPI for November which is expected at 6.8% YoY, the highest level in over 30 years. Recently, Fed Chair Powell retired the term “transitory”, and noted that “inflation has been more persistent and higher than the Fed expected” – the first 25bp hike is priced by next July.