Morning Report: 4 January 2016

4th January 2016 By: Ranko Berich

GBP Sterling has been in a tremendous downward trend during the last couple of weeks, starting the year down versus almost all G10 currencies but NOK. To briefly summarise, GBPJPY is down more than 2.4%, and GBP is down around 1% versus USD, SEK and EUR. Such a downward trend in the pound sums up last year’s trend, especially reflected in the GBPUSD pair, which has dropped around 5.3% and is quickly approaching last year’s lows. This week we will see the release of Purchase Manager Indices (PMI), highlighting construction and services PMIs on Tuesday and Wednesday respectively. Manufacturing PMI is released today at 9.30 GMT.

EUR Euro trading has been mixed for the last couple of weeks. With respect to December 2015 activity, EURUSD has been resilient despite the Fed rate hike last month, having tested the top side of the range twice. EURUSD has begun the New Year on firm footing, retracing from last week’s lows, and rising in the overnight session against the USD and other counterparts. This week’s Euro docket contains a number of economic releases, including PMIs, inflation and retail sales data in the most important economies in the Eurozone. On Tuesday, inflation estimates are released, followed by Services PMIs on Wednesday and German retail sales on Thursday. Manufacturing PMI’s have been released this morning for the Eurozone as a whole, resulting in a small increase.

USD The greenback has gained versus all G10 currencies during the last two weeks, with the exception of JPY. The New Year for USD faces more or less the same issues that markets confronted in Q4 2015. Markets still need to understand the tightening pace of the Federal Reserve, the US economic outlook, and the effect of lower oil prices. The US economy will kick off 2016 with a busy week. On Thursday the FOMC will release the minutes of the last meeting during which the Fed raised interest rates for the first time since 2006.

UK News

  • Reuters. UK economy finished 2015 strongly, says CBI: Growth in Britain’s private sector picked up speed in the three months to December and companies think the momentum will carry on into early 2016, a leading employers group said, suggesting a recent slowing of the economy might be easing.
  • Reuters. British wage growth likely to disappoint in 2016 – industry body: British wage growth next year is likely to fall far short of the expectations of the Bank of England (BoE) and government as employers hold back on pay rises in the face of growing costs, an industry body said on Wednesday.