mask Inflation and the GBP in Focus as the USD Steadies from Monday’s Tumble

16/ 01/ 2018

Inflation and the GBP in Focus as the USD Steadies from Monday’s Tumble

Daily Update - 16th January 2018

Yesterday’s Market

  • EUR Trade Balance

Yesterday’s Explained

On Monday, the Eurozone posted a trade surplus of EUR 22.5 billion in November, up from EUR 19.0 billion in the previous month, with export growth outpacing import growth in November. The unadjusted surplus for the first eleven months of the year amounted to EUR 213.1 billion, down from EUR 237.7 billion in the corresponding period last year, with exports rising 8%, while nominal imports rose 10.0%. The monthly data shows, however, that short-term trends are improving and consistent with a positive contribution of net exports to overall growth in the last quarter of the year. Nevertheless, this slight downwards adjustment will not halt the Euro’s recent hike.

 

Today’s Market

  • EUR Wholesale Price Index, Consumer Price Index
  • UK Producer Price Index, Consumer Price Index

Today’s Focus

Economic data out of the Eurozone this morning is limited to finalized December inflation figures out of Germany and Italy, which are unlikely to have a material impact on the EUR, barring an unexpected deviation from prelim numbers. It’s been a solid start to the year for the EUR and Estonia Central Bank head Hansson suggested that the ECB’s asset purchasing program could come to an end in September should economic and inflation forecasts be met, providing further support at the start of the week.

At the time of writing, the EUR flat at $1.2264, with politics and market risk appetite likely to be the key drivers through the day, as the markets begin to favour the EUR over the Dollar on policy divergence expectations.Whether the ECB will allow the EUR to continue to appreciate remains to be seen however, with the Eurozone’s trade driven economic recovery having been heavily reliant upon a softer EUR.

Across the Channel, it’s a big day for the Pound, with economic data out of the UK including December’s inflation figures. Following the BoE’s rate hike back in November, inflation has yet to ease off, which will certainly raise market sensitivity to today’s figures, though the good news for the BoE is the recent bounce in the Pound. With the Pound sitting just shy of $1.38 levels.

Across the Pond, it’s a relatively quiet day on the data front, with key stats out of the U.S limited to January’s NY Empire State Manufacturing Index figures. While forecasts are for the Dollar to find some support off the back of the numbers, Dollar weakness is coming off the back of a shift in sentiment towards monetary policy and not a negative outlook towards the U.S economy.

There’s just nowhere for the Dollar to hide at present and until the ECB comes out to manage the recent rally that is likely testing trade terms, there’s little that the Dollar bulls can do about it.