Weekly outlook
Last week in review
Main theme driving the market.
The US dollar endured a mixed week, initially falling to fresh lows from ongoing US monetary policy concerns before recovering somewhat after robust US Non-farm Payrolls data eased fears of additional quantitative easing. The dollar’s early demise allowed sterling to reach 2½- month highs, supported by upbeat UK services sector growth figures. The yen’s progress to October 2011 peaks versus its US counterpart was rather concerning after Japanese officials hinted at another round of yen-selling intervention to weaken its currency. The Swiss National Bank also monitored currency markets closely as traders took the Swiss franc to within a whisker of falling below the SNB’s peg against the euro. Commodity-linked currencies such as the “Aussie” climbed after Chinese manufacturing data lightened global growth worries and Australian import and export trade data beat expectations.
Sterling (GBP):
The pound’s rise to 2½-month highs against the US dollar was driven largely by an extremely dovish US monetary policy although some optimistic UK data also played its part. PMI indicators showed growth in both Britain’s manufacturing and services sectors in January, exceeding expectations and reducing concerns the UK economy is heading for recession after contracting in the fourth quarter.
US Dollar (USD):
The US dollar tumbled to fresh lows almost across the board as investors continued to worry the US Federal Reserve’s ultra-dovish monetary policy could lead to more currency-devaluing asset purchases. However, after dropping to fresh multi-week lows versus the euro and pound, the greenback recovered to an extent after US unemployment data surpassed expectations. Unemployment fell in January by 0.2% to 8.3%, its lowest since February 2009, helped by a surge in Non-farm payrolls in the same month.
Euro (EUR):
The euro hovered near recent 6-week highs versus the US dollar on optimism Greece was nearing an agreement which would see Athens avoid bankruptcy. However, as negotiations appeared to stumble, confidence in the euro ebbed while data on eurozone unemployment revealed the number of individuals seeking jobs rose to its highest since the euro project began. Furthermore, revisions to earlier services sector growth figures from the German economy were negative.
Japanese Yen (JPY):
Japanese policymakers finally responded to the yen’s surge against the US dollar with Finance Minister, Jun Azumi, warning investors against speculative flows that are damaging Japan’s vast export markets. The yen reached fresh 3-month highs on the dollar; touching its highest level since Tokyo last intervened to weaken the yen on October 31st, after the US Federal Reserve’s latest promise to keep interest rates low sparked concerns of more quantitative easing.
Recent key releases:
| Indicator | Actual | Forecast | Previous |
|---|---|---|---|
| JPY December Prel. Industrial Production % (m/m) | 4.0 | 3.0 | -2.7 |
| GBP January GfK Consumer Confidence Index | -29 | -32 | -33 |
| EUR December Unemployment % | 10.4 | 10.4 | 10.3 |
| USD January Chicago PMI | 60.2 | 63 | 62.2 |
| USD January Consumer Confidence Index | 61.1 | 68 | 64.5 |
| GBP January CIPS Manufacturing PMI | 52.1 | 50.0 | 49.7 |
| EUR January Flash HICP % (y/y) | 2.7 | 2.7 | 2.7 |
| USD January ISM Manufacturing Index | 54.1 | 52.6 | 53.2 |
| CNY January Manufacturing PMI | 50.5 | 49.5 | 50.3 |
| GBP January CIPS Construction PMI | 51.4 | 52.6 | 53.21 |
| GBP January CIPS Services PMI | 56.0 | 53.5 | 54.0 |
| EUR December Retail Sales % (m/m) | -0.4 | 0.3 | -0.8 |
| USD January Non-farm Payrolls k | 243 | 150 | 203 |
| USD January Unemployment % | 8.3 | 8.5 | 8.5 |
Highlights for this week
Sterling (GBP):
- Data on UK manufacturing and industrial output along with export figures will come just in front of the Bank of England’s monetary policy announcement on Thursday. Sterling-trade may be dominated throughout the week by speculation over whether or not policymakers will surprise markets with another shot of stimulus or keep policy unchanged in anticipation of a pick up in economic activity.
US Dollar (USD):
- An extremely light domestic economic calendar will leave the dollar to shift in-line with general market sentiment which should be influenced by central bank meetings in the UK and eurozone. Talk of growth risks and the need for more artificial monetary support may encourage safe haven dollar buying. The dollar could also regain its poise if talks to cut Greek debt continue to stall.
Euro (EUR):
- Although economic fundamentals continue to point towards a eurozone slump, improved demand for government debt and lower borrowing costs for Spain, France and Italy is helping to prop up the euro. The European Central Bank’s special cheap-loans facility appears to be working and markets will want to see the ECB pledge continued support following Thursday’s monetary policy decision. However, focus should continue to centre on debt talks in Greece and if government and private sector officials do reach an accord, the euro may advance from a relief rally.
Japanese Yen (JPY):
- Traders are becoming a little more wary of Japan’s economic picture after Standard & Poor’s warned Tokyo its credit rating is still at risk. Therefore, upcoming data on local consumer confidence will be closely watched although recent numbers on retail sales, manufacturing and industrial output all pointed more or less in the right direction. Debt talks in Greece will also be closely monitored and if Athens fails to satisfy its international lenders, the risk of default may send traders pouring into the refuge yen.
Upcoming key releases
| Date | Indicator | Forecast | Previous |
|---|---|---|---|
| 06.02 | EUR DE December Factory Orders % (m/m) | n/f | -4.8 |
| 07.02 | GBP January BRC Retail Sales % (y/y) | n/f | 2.2 |
| 07.02 | JPY December Prelim. Leading Indicator Index | n/f | 93.2 |
| 07.02 | EUR DE December Industrial Production % (m/m) | n/f | -0.6 |
| 08.02 | EUR DE December Trade Balance €b | n/f | 16.2 |
| 09.02 | CNY January CPI % (y/y) | 4.1 | 4.1 |
| 09.02 | JPY January Consumer Confidence Index | n/f | 38.9 |
| 09.02 | GBP December Industrial Production % (m/m) | n/f | -0.2 |
| 09.02 | GBP December Manufacturing Product. % (m/m) | n/f | -8.65 |
| 09.02 | GBP December Trade Balance £b | n/f | -8.65 |
| 09.02 | GBP BoE Interest Rate Decision % | 0.5 | 0.5 |
| 09.02 | EUR ECB Interest Rate Decision % | 1.0 | 1.0 |
| 10.02 | CNY January Trade Balance $b | 10.8 | 16.52 |
| 10.02 | USD December Trade Balance $b | -48.4 | -47.8 |
