Yellen confirmed as Fed chair while USD dips slightly. EUR reverses losses.

Tom Tong07/Jan/2014Currency Updates

ASIA

London opened yesterday morning following an eventful Asian trading session, which led to a move worth noting in JPY. Japanese equity markets saw the Nikkei slump losing around 380bp. Conversely the JPY saw a rally and reversed its previous 5 year lows against the USD. December saw the JPY at record lows, however it has started the new year with strong support and it’s worth keeping eyes open to see if this trend developments. Presently, JPY trades at a 4 month high against the dollar. It was only last October when it was at 5-year lows. Emerging Markets’ FX is also likely to see movement off future FED moves.

GBP

London closed with sterling scalping fair gains against the greenback. Trading against the euro dipped slightly as we saw a stealth euro rally across the board. The Asian trading session saw sterling mostly trading sideways against its main pairs and no notable cable movements.

After a skinny Christmas period for data releases, the market eagerly anticipated the release of UK service sector PMI. The figures displayed a slight slip, however this was widely shrugged off as the numbers still continue to punch in at very strong levels. The consistent strong performance provides sufficient fuel for the wider market and economists continue to proclaim that wider UK economic growth is likely to be sustainable and on a solid upwards trajectory. The headline figure dropped to 58.8 but it still remains far above 50, which is the magic number to beat to indicate growth in the economy.

Separately a survey of roughly 8000 businesses by the British Chamber of commerce paints a equally encouraging outlook for growth. The poll of business confidence was focused on the manufacturing and service sector, which together consist of about 90% of UK output. The poll rang in at an all time high showing orders and employment expectations are very bullish.

One can only assume Carney continues to sit pretty in the BoE as the carousel of solid data shows no sign of abating. On the flip side the market will only increase its debates over BoE policy and many are already urging him to cut interest rates this year. Speculation mounts that a change in the unemployment level to bring the BoE to consider altering interest rates remains on the cards.

Politically Westminster yesterday echoed with the ever controversial Chancellor George Osborne proclaiming he wants to further cut £25bln from welfare. His austerity measures continue to divide opinion. However, overall he continues to enjoy majority support both internally and publicly.

No data out of the UK today.

USD

London closed with the dollar dipping against both sterling and the euro. Nothing to write home about over the Asian session with the pairs merely bouncing around resistance levels. Headline news is that Yellen was confirmed as the next FED chair but this was more a formality than anything. She will chair for the first time in FED meetings later this month.

Data releases of note out of the US yesterday were relatively significant. Net foreign trade likely made a small contribution to Q4 growth, but exports should now accelerate. The sharp drop in ISM non-manufacturing orders is probably nothing to worry about and history would suggest this is merely a seasonal adjustment. Chain store data suggest retailers struggled over the holidays, but the season was not a disaster. Indeed, this is a notable trend in both the US and world economy with retailers with a physical shop being hammered by online competition. Thus, Redbook is not the best indication for consumer spending over the festive period.

Right now we are all waiting for Non-farm Payroll figures on Friday with around the 225K mark being widely called. This would fit with the trend of a consistent dip hence the announced taper in December. Any Non-Farm Payroll figures notably above or below the consensus will likely lead to greenback movement. Data out today should give the market a better idea of where the figure is going to be.

Data releases of note today include Redbook, US international trade figures and consumer credit.

EUR

The euro had a strong day yesterday enjoying gains against both sterling and the dollar. Eurozone PMI was in the markets crosshairs yesterday with the market waiting to pull the trigger as the euro dipped hard last week. Thus, traders were sniffing for scents to lead euro support thus fueling a rally from current levels.

The PMI did not disappoint and clocked in higher than the market called. Thus, we saw a fair euro rally across the board with the majority of last weeks’ losses reclaimed. However, worryingly the data again mirrors other euro macro data and the last PMI release. A clear trend displays that the eurozone nations are operating at 2 entirely different levels. Germany leads the charge whilst the likes of France drag on progress, as France is Europe’s second largest economy, this is naturally a huge concern. This was again highlighted yesterday with French PMI at its worst level in 7 months. Spain the previous badboy of the Eurozone is now showing fair growth and at its current rate France looks set to replace Spain as the nightmare child of the eurozone. Ultimately, cripplingly high levels of unemployment and minuscule levels of growth are not a recipe for success. On a wider euro view Germany and Ireland and employment levels are rising, Italy and France continue to struggle. The tone of the ECB will be heavily scrutinised at this week’s meeting with the market trying to microscope any clues for is future action is likely.

Data releases of note today include eurozone CPI and PPI, German unemployment rate and unemployment change for December as well as French consumer confidence.

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Written by Tom Tong

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