Sterling continues rebound despite rate cut talks

17th January 2020 Market Update

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?? GBP - Sterling continued its rebound yesterday as markets seem to have taken pressure off the currency despite odds of an interest rate cut in January rising to 62%. One touted reason for the relief on the pound seems to be that investors perhaps overreacted to the recent comments made by BoE members that a rate cut could be needed in the UK.

Attentions now will most likely turn to January’s manufacturing, construction and services PMI’s due out later this month to see what impact the new Conservative government has had on the respective sectors which in turn will provide a good gauge of the state of the economy. Poor readings here and markets could well resume the run on the pound leading up the January 30th Interest rate decision.

On the agenda today will be Decembers retail sales figures with analysts expecting year on year sales to rise to 2.6% from November’s 1% reading.

?? EUR - Yesterday we see the accounts of the December meeting between ECB policymakers with a surprising upbeat tone. The Bank suggested that political risk seems to be subsiding, inflation pressures seem to be building and the bloc’s manufacturing sector seems to be bottoming out.

The euro gained initially versus the dollar following the news, but the gains were short-lived following better than expected retail sales data from the US.

Inflation figures are due out today at 10am so it will be interesting to see if the ECB are correct on the judgement that inflation pressures seem to be rising or not. Markets expect inflation to remain at 1.3%.

?? USD -  The agreement of the Phase 1 deal between the US and China seems to have had little effect on the dollar with investors now focusing on future talks between the two nations.
As stated above, retail sales in the US exceeded expectations, causing the dollar to gain versus most of its counterparts.
The only thing of note today will be speeches by Fed speakers Quarles and Bowman as well as Michigan consumer sentiment index in the afternoon.

Summary:

GBP: Sterling set to finish week higher
EUR: ECB show upbeat tone
USD: Retail sales overshoot

 

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