EUR disinflation continues. Market awaits Non-Farm Payroll figures as the USD incurs gains.

Tom Tong08/Ιαν/2014Currency Updates


An uneventful day for the pound yesterday. London closed with the pound a slither down against the greenback. Trading against the euro was flat. Across the board mostly trading sideways with no notable movements. Fundamentally there was no data out to pivot the market and most traders are waiting to hear the BoE opinion on what the UK recovery means for QE and interest rate policy.

Overall, yesterday’s tight ranges are stemming from a fairly paradoxical situation with the UK economy growing so quickly. The market continues to second guess the likely actions of the BoE. Therefore, in this atmosphere of such uncertainty few are willing to get into sizable positions.

As the pound hit a 2-year high against the dollar last week it’s going to prove very difficult to push it any higher in the short term as the positive news is already priced into the market and the focus now is on the thoughts of the BoE. Some illumination on the situation should be shed following a 2-day BoE meeting which begins on Wednesday. The rumour mill is spewing noises that the BoE could break away from standard procedure and issue a statement to push back market expectations of a move on interest rate.

Minor data of note out of the UK today includes – Halifax house price and shop price index.


London closed with the euro nudging up against both sterling and the dollar. Inflation data showed that disinflation is properly underway. However, this was widely called and there was no notable market response as stronger than expected German employment figures lent the Euro support and offset lack-luster CPI figures.

Last year’s surprise ECB interest rate cut is unsurprisingly still playing on the psyche of traders as the market awaits compelling technicals and fundamentals to display that the eurozone recovery is sustainable. Despite 2013 being a tough year for the eurozone, both the euro and eurozone equity markets performed with great resilience. Indeed the ECB achieved growing success in stabilising the sovereign debt crisis.

With this theme in mind yesterday the market focus was on both eurozone inflation and German employment figures. The ECB interest rate cut was initiated last year to uppercut the threat of deflation. However, deflation continues to slide towards the ropes of disinflation territory. 0.6%-0.7% was called and it came in at 0.7%, which is a new low and considerable distance from the 2% target. Presently, the market remains calm and is probably waiting to gain further insight over ECB thoughts on the situation. The ECB meets tomorrow and doubtless it will be a topic of discussion.

Germany remains the darling of Europe with yesterday’s employment figures coming in better than expected lending the euro support and helping it scalp some gains.

Weighty data out of the eurozone this morning – eurozone unemployment rate and retail sales as well as German factory orders and trade balance.


London closed with the dollar scuttling up slightly against both the euro and sterling.

International trade figures were strong, plunging oil imports depressed the deficit, boosting Q4 GDP growth to about 3% , the plunge in imports stems from the fracking explosion across the US which holds a parallel with the historic gold rush and is a welcome boost to the US economy.The non-oil deficit fell by a more modest $1.2bln, but that’s the second straight decline and the recent strength in exports is consistent with the improvement in the ISM manufacturing export orders index. The headline deficit cannot continue to fall at this pace and indeed a December rebound is a good bet, but for now this is very good news.

The market continues to await Fridays Non-Farm Payroll. Today brings the single best advance indicator of the monthly payroll numbers, in the form of the ADP report. The ADP model relies in part on movements in jobless claims, which tell us about the firing side of the payroll equation. A host of survey indicators tell us about the pace of gross hirings, but claims are the only reliable guide to firings.

With this significant caveat in mind, we think today’s ADP report will show private payrolls rose about 200K last month, trivially below November’s 215K but in line with the underlying trend. This figure would bring NFP in around the called market number.

Data of note out of the US today- employment change and the FOMC minutes.


Written by Tom Tong

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