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Sterling strong while Europe worries

By Callum Holmes February 14th, 2017

Sterling strong while Europe worries

Data could have a major impact on the three currencies we look at in this market update. That’s because markets see them as indicators of future economic strength or weakness and thereby interest rate changes. Key UK inflation data for January is released today.

Sterling up again ahead of inflation figures

The pound strengthened against the euro on Monday, mainly because of political and economic worries in the Eurozone and last week’s better-than-expected manufacturing and trade data in the UK.

Yesterday was a quiet start to a very busy week in terms of economic data. However, today isn’t just Valentine’s Day in the markets but inflation day.

That’s because one of the key economic figures will be released later today. The headline consumer price index, the Bank of England’s preferred measure, is expected to move closer to its target of 2%, hitting 1.9% (last month: 1.6%). Although the Bank of England has stated that it might overlook inflation data for the time being given the uncertainties around Brexit, the markets will see it as an indicator of future interest rate hikes.

Big data day ahead

The Eurozone also had a quiet day in terms of data releases yesterday. German wholesale price data as well as French and Italian short-term bonds were largely as expected.

The European economic forecasts had a confident tone regarding the European Union but the overhanging risks in Europe, the most prominent being a Greek default or a Le Penn victory in France, weighed down on the single currency. As a result, it weakened against both the pound and the dollar.

Today sees the bulk of the week’s data releases. Key Gross Domestic Product figures from the Eurozone as well as Germany and Italy will be released. We’ll also see the respected ZEW (Centre for European Economic Research in Mannheim) release its German current conditions and economic sentiment figures plus European economic sentiment data. We’ll also have European industrial production figures.

Many of these releases are ‘heavy-hitters’, so any disruption or discrepancies between expected and actual figures could have a serious impact on the single currency.

All eyes on Yellen and economic data

After a quiet week, with cable mainly range-bound in the $1.24-1.25 range, dollar traders are now looking to the busy data week ahead.

Federal Reserve Chair Janet Yellen’s semi-annual testimony to Congress begins today and ends tomorrow. Markets will be keeping a close eye on any potential changes to monetary policy following Donald Trump’s proposed fiscal stimulus. Any indication of further rate hikes later in the year will likely strengthen the dollar.

Also out will be retail sales figures, industrial output and CPI inflation for the month of January – all key data pieces which could add to the volatility we’re already seeing in the market now.

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