Slight Euro gains as market awaits NFP and IR decisions

Tom Tong06/Feb/2014Currency Updates

GBP

Yesterday was a mixed affair for the pound. Data was varied but came in strong overall, pointing to a good start to the year for the economy. Clearly the UK has got out the traps quickly, and the market expects it to keep up the pace throughout the year. It appears most traders are jumpy about taking on weighty positions, with a risk off attitude prior to today’s BoE IR decision and Fridays NFP.

London closed with the pound down against both the greenback and Euro, however losses were minimal.

Markit PMI for the dominant services sector saw a slight dip, easing to 58.3 in Jan opposed to 58.8 for December and below the market call of 59. Even with this brief sidestep the sector is still elevating at a rate that fares well for another strong GDP reading for Q1. The service sector was a key contributor to growth last year and this is expected to continue.

The BoE IR decision kicks off at 12.00 GMT. It’s almost a given that no change will take place, the emphasis and market reaction will more so rest on the tone and attitude of the BoE.

EUR

Good show for the Euro yesterday with the currency scuttling up against both the Dollar and pound. Markit PMI for the services sector came in to the upside for the 6th month on the bounce. London closed with Euro gains against both the Dollar and pound. Were still a considerable distance from the Euro highs seen over Christmas, however presently noises are that in the short term we could see further gains.

PMI for the services sector expanded by 51.6 points in January, marginally higher than the previous 51 and missing forecasts of 51.9. Germany led the charge and its figures improved for the 8th month in a row. Encouragingly, France, Italy and Spain also improved. The acceleration of the peripheral Euro members has been a interesting development and has aided both the currency and bourses as investors become more willing to embrace risk.

Retail sales saw a minor dip although this was nothing major. Increasing consumer confidence should mean that they steadily improve as workers become more willing to splash the cash. The Asian session has seen the Euro trading sideways as we await today’s ECB meeting and announcement.

Eyes on the ECB today with the IR decision set for 12.45 GMT. The street is split as to whether the ECB will deliver any change. Following the decision we have the press conference as 1.30 GMT. Whatever happens we expect pivots; the words and actions of central banks are so key right now and the market stethoscope picks on the slightest falter from the central bankers.

USD

London closed with the Dollar up against the pound, although we saw slight losses against the Euro.

Data out yesterday paints a encouraging picture for the US economy. ISM non manufacturing and services PMI both posted strong figures. The ADP numbers were okay but came in slightly below expectations, which leads to inevitable chatter over tomorrows NFP. The ADP numbers are typically unreliable however they still hold a psychological effect on the market, with the result affecting prophecies for tomorrows numbers. This resulted in a little dollar weakness.

The US ADP report showed a increase of 175k new payrolls for the private sector in January. However it means a slowdown from Decembers reading of 227k.

Better news out of the services sector, which grew in January, ticking up to 56.7 from 55.7 in December.The ISM non manufacturing survey always held a parallel seeing gains. The greenback saw some support as a result, however US stocks are still having a tough time. Everyone is still primed for tomorrows NFP with the street calling a big number.

Data of note today includes- continuing and initial jobless claims and trade balance figures.

RoW

The finance minister of Indonesia has been the latest figure to express his concern at Fed tapering, asking for greater clarity on the plans of the US central banks. Indonesia, one of the so called ‘fragile five’, saw its currency lose a quarter of its value last year, and is feeling the effect of uncertainty in emerging markets.

Mexico yesterday got its reward for major structural reform last year by receiving an A rating from Moody’s for the first time, while Ghana tried to stem the slide of the Cedi by announcing controls on domestic access to foreign currency. While this may halt the decline in the short term, it is a plaster board solution and does not address the underlying issues of the massive account deficits driving the decline.

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Written by Tom Tong

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